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Monday, October 21, 2002

India’s IT sector rebounds
Sumeet Chatterjee

INDIA'S IT sector, the locomotive of the country’s economic growth, is finally showing signs of a rebound after struggling with softening demand and intense pricing pressure in the last few quarters.

Analysts say the latest quarterly earnings posted by blue-chip software companies clearly indicate that the elusive recovery is on the way and that the stubborn technology spending slowdown is over.

The bigger players in the sector such as Infosys Technologies and Hughes Software Systems have fared better than expected in the quarter ended September 30, 2002, raising their outlooks for the year ahead.

"The latest financial numbers of the top-rung companies and the near-term earning guidance has certainly triggered hopes that months of bad news could finally be coming to an end," said Neeraj Deewan, an analyst with Quantum Securities.

"I think it is becoming increasingly clear that we are past the bottom and the gloom that had overtaken the sector is giving way to hopes of recovery in the months ahead," Deewan told IANS.

After a year in which software firms slashed salaries, froze headcount and resorted to low-key layoffs, Indian companies have resumed hiring as they eye a slew of new large orders that had faded away in the tech meltdown.

In the last few quarters, software firms such as Infosys and Wipro, the country’s most valuable by market value, have struggled to maintain growth after doubling profits annually in prior years.

But now a pickup in hiring and spending after months of uncertainty triggered by the global economic slowdown and India-Pakistan border tension underlines optimism about sales growth accelerating later this year.

Infosys Technologies Ltd., India’s largest listed software exporter, last week reported 12 percent higher profits for July-September quarterly period and raised its revenue forecast.

The company’s net earnings touched Rs.2.26 billion for the three months to September, up 12 per cent on a year earlier, while revenue jumped more than 35 per cent to Rs.8.79 billion, beating analysts’ projections.

The Nasdaq-listed company hired about 1,800 people in the July-September quarter, more than three times the 566 it did in the preceding three months, triggering speculations that it expects a big rise in offshore outsourcing.

It forecast income from software services and products at Rs.34.33 billion to Rs.34.67 billion for the current year to March, up from its earlier estimate of Rs.31.08 billion to Rs.31.95 billion.

"Increased acceptance for the offshore outsourcing model has accelerated the revenue growth beyond our own internal projections," said Infosys chief executive Nandan Nilekani.

Infosys acquired 18 new clients during the quarter, including Arrow Electronics Inc., auto firm Porsche AG and aluminium sheets maker Commonwealth Industries.

Hughes Software Systems, one of India’s leading communication software firms, reported a higher-than-expected jump in second-quarter earnings and forecast sequential sales growth would continue to be strong.

Hughes, a unit of U.S.-based Hughes Electronic Corp., said July-September profit rose 31.7 per cent year-on-year to Rs.83 million on the back of cost cuts.

"We will continue to look at areas where we have opportunities to cut costs further," said Hughes Software’s managing director Arun Kumar.

Hughes, which has mobile handset maker Nokia as one of its clients, added 13 new clients in the past quarter, including telecom equipment testing firm Spirent.

Kumar said he expected third-quarter sales to grow at around 10 per cent over the second quarter as fresh revenue through integration projects and maintenance and support work from the telecom service provider segment flowed in.

"I think in general the results have been good. The scars of fierce competition for clients and pressure on billing rates are finally getting wiped out from the IT industry," said a tech industry analyst with rating firm ICRA India Ltd.

"The stock market investors are also applauding folks that put up strong numbers and raising guidance for the near-term business," the analyst added.