Indian software sector downgraded to neutral

MUMBAI: HSBC Securities and Capital Markets (India) said it has downgraded

India's software sector to neutral from overweight amid uncertainty following

last month's attacks on its main market - the United States.

"We believe there will be some impact on Indian IT companies as they

derive a significant part of their revenues from the United States," it

said in a report dated September 27, made available to Reuters on Monday.

HSBC however said it was still too early to estimate the precise impact on

the profit and revenue of Indian software companies.

"Given that repeat business accounts for between 80 percent and 90

percent of revenue for the Indian companies, and that they have long-term

agreements with their clients, the incremental impact is likely to be 5-10

percent in terms of revenue and profit," it said.

"The impact will be in the form of new business not coming through for

the next three months," it added.

HSBC also cautioned that if the U.S. crisis prolongs for over 40 days, it

would have to lower forecasts.

It advised investors to hold on to large companies like Infosys Technologies

, Wipro and Satyam Computer Services and reduce exposure to middle-capitalized

and small-capitalized companies.

The report however said Indian companies had negligible exposure to the worst

affected airline and insurance sectors in the United States.

While firms like Infosys, Wipro, Satyam and HCL Technologies had less than

two per cent exposure to the airline sector, they had 14-20 per cent exposure to

the insurance industry, the report said.

However none of them have any significant exposure to companies like Swiss

Reinsurance Company and Munich Reinsurance Company which have been badly hit, it

said.

(C) Reuters Limited 2001.