Low costs lure IT companies to India

An Indian official said software exports are expected to grow by 29% to $9.7bn in revenue in the year to end-March.

India's junior minister for communications and information technology, SU Thirunavukkarasar, told parliament that the earnings from domestic sales were expected to grow by 12% to $2.7bn for 2002-03.

But at the same time, Indian broker SSKI released a report which painted a less buoyant picture for the country's bustling IT sector.

Underlying worries

In a report entitled "Reality Check", the brokerage said it was worried about IT companies' earnings.

"We are revising downward our twelve month return forecast for the IT services sector from the earlier 30-50% to 5-20%," SSKI said.

Indian software companies have benefited from low costs as overseas firms from a range of industries have outsourced work to India in an effort to save money.

But SSKI said tough competition from units of foreign software firms operating in India has increased marketing costs.

India's biggest software firms Infosys, Wipro, Satyam and HCL Technologies all released disappointing October-December results.

"It seems that operating margin pressures will be far more severe in 2003/04 than our previous expectations, although strong revenue growth expectations are likely to be met," SSKI said.

India's IT software sector has seen rapid growth, catching up quickly with traditional export successes such as textiles, gems and jewellery.