Outsourcing to drive Indian tech recovery

By Anshuman Daga

BANGALORE: India's top software exporters are expected to show a rise in earnings when they begin unveiling quarterly results this week, as growing outsourcing business helps them buck a global trend, analysts said. Aggressive hiring and a pick-up in client visits are also signposts that suggest improving fortunes, the analysts said.

Better-than-expected volume growth is projected to help the companies beat earnings estimates for the past quarter and traders await news of new contracts, seen as the key driver for stocks. Indian firms are making a big push to bag long-term contracts as companies in the United States and Europe, battling severe cost pressures, outsource a wide range of jobs from payroll accounts to large software and systems maintenance deals.

"The key issue is whether many of the big ticket clients of software players, which have tested the waters in India, are ramping up work significantly or not," Amit Khurana, analyst at Birla Sun Life Securities, told Reuters. Nasdaq-listed blue-chip Infosys Technologies Ltd., India's second-largest software exporter after unlisted Tata Consultancy Services, reports results on Thursday.

A Reuters poll of 10 brokerages released on Tuesday forecast Infosys to report a 5.5 percent rise in quarterly net profit to 2.29 billion rupees ($47.4 million) in the July-September second quarter, and up 13.5 percent on the year.

All eyes on Infosys

"There is a fair amount of optimism already in the market for Infosys and that can be a little dangerous," said Jamshed Desai, head of research at TAIB Securities." Bangalore-based Infosys had estimated second-quarter profit to rise in a range from 1.6 percent to nearly five percent with sales expected to be flat to two percent higher.

The company, which aims to increase full year profit by 16 to 19 percent on revenue growth of 17 to 20 percent in dollar terms, is likely to have hired more than 1,000 people in the period from July to September, double the preceding quarter, analysts said. A sharp run-up in Infosys' stock price has meant most of the good news has been digested by the market, however.

Infosys, up 0.86 percent at Rs 3,482.50 in afternoon trade, has jumped about 11 percent in the past two months in line with a sectoral rally as the industry drew investors who became disillusioned by a delay in privatization. "What people want to see is the extent to which Infosys will beat its own estimate and revise its full-year target," Desai said. "If they don't, people are going to wonder whether the second half will be weak."

Profit at Wipro Ltd., India's third-largest software exporter, is seen growing 6.25 percent on the year to Rs 2.29 billion. Satyam Computer Services, the No. 4 exporter, is likely to post a 5.5 percent rise in net profit on the quarter with sales set to increase 4.2 percent.

The poll expects smaller exporter Digital GlobalSoft, a unit of Hewlett Packard, to see its net drop 5 percent but sales are seen up six percent.

($1=Rs 48.36)

(With additional reporting by Rosemary Arackaparambil in Mumbai)

© Reuters