While it is true that the short-term borrowings in foreign currency are low, the impact of a little over $1 billion of portfolio outflows could exert pressure on the rupee. The oil price increase fuelled this fire.

RBI's decision to use a variety of tools and a muted approach to containing the rupee volatility is to be commended. But some of the underlying causes in terms of the fiscal deficit will continue to harass the central bank, until and unless the government enacts the fiscal responsibility act.

The corporate sector has enjoyed a good flow of resources and liquidity has been no problem. The money supply growth, too has been within targets. The bonus in the game is that there has been no flare up in inflation. But for the fuel component, the picture would have been even better. The low inflation and abundant supply of resources should seem promising for the corporate sector. Hopefully corporates will be able to pass on the increase in input costs and earn even higher margins.

Infosys Technologies
It seems that the present fiscal would be the third successive year in which the company would report a three digit growth rate in net profits in percentage terms. The company has surpassed the expectations yet again as is evident by the results of the quarter ended September 2000. Some may attribute the 135 per cent growth largely to the sharp depreciation of rupee against the dollar. However, it is not true.

Net profit, after excluding total exchange differences (in topline and other income), stood at Rs 129.41 crore compared to Rs 58.82 crore in the corresponding quarter of the previous year. This shows growth of 120 per cent which is still more by around 10 per cent than expected.

The improvement in operating profit margin (OPM) has aided the scorching pace of growth in profits. After adjusting for foreign exchange fluctuation, the OPM has gone up by nearly 2.5 percentage points to 37.46 per cent. The margins are further set to improve with the company entering into wireless access protocol (WAP) based solutions.

It is believed that the future of Internet access will be driven by cellular phones. So, the potential of WAP business is enormous. The Internet revolution is entering the broadband phase. To cater to the demands emerging for broadband solutions, the tie-up has been made with NightFire Software Inc, a leading player in this field. E-business revenues to total turnover has increased to 31.4 per cent. But the margins may not be high considering the competition and meltdown of several B2B and B2C portals.

Twenty seven new clients were added during the quarter. Their names include Eastman Chemicals, Cisco Systems and other bigwigs. Heavy dependence on the US market has been slowly on the decline.

The European market has contributed 17.38 per cent of the topline. This is sure to go up with the setting up of new software development centre in UK. Marketing offices have been opened in Hong Kong and Sydney. Top five clients have contributed less than 25 per cent of total income, indicating widening base of the revenue stream.

The company's cash resources are very high at Rs 535.90 crore. The significant factor here is that this balance is after utilising all the ADR proceeds. It implies that the cash flow from operations has been steadily on the rise in tandem with higher profits. This can help to achieve further growth.

The trained manpower is the only constraint for growth. The staff is being mobilised at a high rate. 1,480 employees have been added in the current quarter as against 1,056 in the quarter ended June 2000. New software training and development centres are being constructed in Mysore and Chennai. However, it seems that the market is not happy with the way ADR funds have been invested. While most software companies use the excess resources for acquisitions to accelerate growth, this corporate has put majority funds in strategic investments. These include buying of stake in CiDRA Corp of US and m-commerce ventures of Singapore etc.

The only other blemish in the performance may seem to be lower utilisation rate of manpower ie the revenue earned per employee. It stood at 80.5 per cent, which is approximately 6 percentage points less than what it was in the past. The company sights the need of creating a reserve bench for this reason.

The market has given a thumbs down to the superlative performance. The stock nosedived by more than Rs 100 to Rs 7,288 following the announcement of the results. The annualised diluted EPS (on the basis of HY results) is Rs 80.42. This translates into P/E ratio of 90, which used to be more than 200 at the start of the infotech boom. This apparently means that the investors are skeptical about repetition of the phenomenal growth rates achieved in the past.

K Seshadri and Manish Joshi