Indian IT mid-cap firms to post mixed Q2 results

MUMBAI, INDIA: Indian mid-cap technology firms are seen posting mixed quarterly results amidst reviving global demand, even as a rising rupee and easing cost controls at these firms are seen denting margins in the coming quarters.

Mastek Ltd will kick off the earnings season for the sector on Thursday, with analysts predicting its net profit to fall by more than a third for the quarter ending September on lower volumes, with sales dropping by over a fifth.

"We expect 2QFY10 results to reinforce our expectation of client decision making turning orderly, improvement across verticals ... and continuation of recovery signs," brokerage Motilal Oswal said in a note to clients.

The brokerage expects a stable pricing environment to continue.

MindTree is expected to post a 5.5 per cent fall in net profit as revenue remains almost unchanged from a year earlier. KPIT Cummins is seen posting a 27 per cent rise in profit even as revenue falls 13 per cent.

The economic slowdown put the brakes on the Indian IT sector's scorching pace of growth as the clients of these companies slashed their technology spending and demanded price cuts in an effort to battle a liquidity crunch.

Indian companies had responded by implementing a slew of cost cutting measures, including freezing new hiring, and cutting jobs and wages, helping margins.

The situation, however, seems to be turning, analysts said.

In recent months, Indian media has reported several IT companies, including Infosys Technologies, would give pay hikes and promotions.

This, and a rupee that leapt to its highest level against the dollar in more than a year before paring gains on Wednesday is likely to pressure margins, analysts said.

The rupee has gained 11.9 per cent from its record low of 52.2 against the dollar touched in early March, and is up 4.4 per cent in 2009.

While analysts agree the worst is over for the Indian IT industry, there is uncertainty about the pace of recovery.

"Seasonally strong Q2 could positively surprise us; however, we maintain our cautious view for a sharp recovery," brokerage Prabhudas Lilladher said in a note. "We believe that sales cycle has improved but (is) not in the best of its health."

IT bellwether Infosys reports earnings on October 9.