Software stocks going soft

By : |June 7, 1999 0

Since early 1998 software stocks have been riding high and investors have had galloping
returns. But 1999-2000 might see a slowing down of software stocks as the Y2K business is
close coming to an end.

The indicators

If we take a close look at quarterly sales and net profit growth of the top Infotech
companies, the slowdown would be evident in numbers. Aggregate quarter on quarter sales
growth for Satyam, Infosys, and Tata Infotech has declined from 99 percent in Q1 (1998-99)
to 53 percent in Q4. The Q2 sales growth, over Q1, was 75 percent where as Q3 saw 63
percent sales growth.

In 1998-99 the IT industry grew 66 percent in dollar terms and 75 percent in Rupee
terms. In 1999-2000 it is expected to grow 55 percent in dollar terms.

The reasons

Indian software industry gained quite a bit from the Y2K projects. But the year 1999-2000
will see Y2K business coming to an end.

Since many companies are postponing any development work, there’s not much hope of
getting more projects during this period. The major re-engineering work currently in
progress began in 1997-98.

Hopefuls feel that this is a temporary blip and things would improve where as some hold
the view that the prices of software stocks might dip by 25 percent in the next three
quarters.

Will things improve?

Yes, they will. Indian software companies will have to change their focus from Y2K to
emerging technologies such as the Internet and e-commerce.

Another area that may promise growth is that of Euro-conversion. NASSCOM (National
Association of Software and Services Companies) is looking at Euro-conversion as the next
gold mine for the Indian software industry.

The Indian software industry is one of the biggest software industries in the world.
Indian software professionals enjoy a fairly high demand in the US and European countries.
A timely shift in focus will help the industry maintain its growth.

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