• PAGE ONE
• INDEX
• HOME

Tech cos: Markets breathe easy

Suresh Krishnamurthy

THE financial performance of technology companies that the markets were eagerly awaiting has so far not contained any negative surprises for the markets.

Infosys Technologies, Satyam Computer and Hughes Software have either announced earnings that are in line with expectations or have beat market expectations. Overall, the lack of negative surprises has brought about an amount of stability to the markets in the last two days.

Stocks of technology companies have however not run up significant improvement in prices. This needs to be viewed in the backdrop of the statements from the technology companies regarding billing rates. Both Infosys and Satyam have said that they are fac ing pressure on billing rates.

For example, Infosys Technologies has said that it faced pressure on billing rates in the first quarter and that reduction in billing rates offset partly the rise in sales volumes. Satyam Computer too has said that a 3 per cent reduction in billing rates is expected in the next quarter. This has expectedly caused some jitter thwarting buying interest in the process.

However, notwithstanding the pressure on billing rates, both Infosys and Satyam Computer are optimistic about maintaining revenues and earnings roughly at the same level as in the first quarter of this financial year. With respect to guidance for the yea r ended March 2002, while Infosys has maintained that it would be able to maintain a growth rate of 30 per cent, Satyam has said its growth rate for the year would be 40 per cent.

However, the earnings guidance themselves throw up a few questions. If Infosys is able to maintain its profits for the next three quarters at the level of the first quarter that itself would produce a growth rate of around 20 per cent. In the case of Sat yam, maintaining earnings at the level of the first quarter would produce a net profit growth of 53 per cent.

In addition, these companies do not foresee decline in earnings in the next quarter. This suggests that both Infosys and Satyam expect the sluggishness to continue into the third and fourth quarters of the year March 2002.

How markets interpret these messages are likely to determine the trend in the stock prices of technology companies. For example, Merrill Lynch has put a positive spin on these developments. It has said that the performance of Infosys suggests that it wou ld out perform its own expectations. On the other hand, markets overall still seem to be uncertain about growth rates in the near-term.

Going forward, markets will seek assurance from other frontline companies such as Wipro and HCL Technologies. Judging by the performance of Infosys and Satyam, Wipro and HCL Technologies are likely to show a healthy rise in profits. Still, what they have to say about the next few quarters will now gain added significance.

Overall, the uncertainty clouding the financial performance of the technology companies does not appear to have vanished altogether, even though the two frontline companies have been able to indicate that Indian companies still have substantial strengths .