Mastek issues profit warning as ICE melts

The Board of Directors of the company will meet on January 12, 2001 to discuss the full year impact in terms of revenue and profits and shall release the same thereafter along with the quarterly results.

Reacting to the news, Mastek share fell to Rs 321.85 as compared to its previous close of Rs 349 in a sagging stock market.

Last week, Credit Suisse First Boston (CSFB) downgraded India’s information technology (IT) sector to neutral saying the slowing US economy would adversely affect the growth rate of Indian software services firms.

In a research note dated December 22, CSFB said it had downgraded all companies in the sector to hold, citing tougher macro environment conditions and rich valuations.

Market talk of the CSFB downgrade rocked Indian technology shares on Friday, with the Bombay Stock Exchange Information Technology index closing 7.83 per cent lower at 2,604.45 points and the benchmark exchange index ending down 3.18 per cent at 3,905.90.

IT shares were also down in post-Christmas trading on Tuesday in line with the rest of the market as the BSE Sensex fell by 79 points. Middle rung firms were however likely to face a little more pressure on their margins due to a commoditisation of their services and lower pricing.

But, National Association of Software and Service Companies (Nasscom) out up a brave face by saying that the slowdown of the US economy would not adversely impact the Indian software business.

"The slowdow in the US market would rather help Indian software exports as more American companies would outsource software from India due to cost-effectiveness," Dewang Mehta, Nasscom president, said in New Delhi.

Citing the example of 1992-93 slowdown of the US economy, Mehta said that the Indian industry had benefitted during the period as American companies turned to India for outsourcing its software development operations.

Mehta said that the Indian IT industry had also spread itself across various regions for revenues, and dependency on US had reduced to 60 per cent at present, from 95 per cent in 1991.

Commenting on the declining margin of software companies, Mehta said that the general average industry margins were not likely to come down for software companies.

"There is some slowdown in the domestic market, but it is marginal and would not bring down the industry average," he said.

India’s top rung software services firms are expected to show earnings growth of over 50 percent in the year to March 2001 despite a decline in margins, says the manager of Kothari Pioneer’s (KP) Infotech Fund said on Tuesday.

Profits of India’s top-rung software firms grew by more than 100 per cent in 1999/2000. R Sukumar, who manages the KP Fund, said while the shakeout among Internet firms in the United States was likely to have a small impact on the overall sentiment of technology firms, Indian IT firms had not seen any significant slowing of demand.

"There is a little bit of a negative sentiment as compared to earlier and one cannot see the margin expansion that one would have expected earlier, but I still see 50 per cent plus earnings growth at the top firms," Sukumar said.

He named Infosys, Wipro, HCL Technologies as among firms expected to show good earnings growth.

"Earlier, it had been said that it is not market size but the number of people that is a constraint to growth, so with people not being a problem and these firms having acquired new clients. I see no reason for a very negative view on these firms," he said.