Worsening pricing standards are expected to take a toll on the margins of IT majors to the tune of 40 basis points to 200 basis points.

There is also a possibility of degrowth in the net profit of some of the top software companies, market sources here told FE. In this regard, the guidance for FY 2010 holds special significance for all companies in the sector.

Worsening economic conditions worldwide, coupled with fluctuating currency exchange rates over the last few months, is expected to take a toll on the sequential revenue growth of these companies in dollar terms on an organic basis, sources further said.

Harit Shah, an analyst with Angel Broking, said, “Fourth quarter margins of major software companies will remain under pressure, following an exacerbation in pricing. Also, since IT companies have, by and large, fulfilled their hiring commitments across campuses, and a proportionate amount of business is not there in the pipeline, this will be another factor exerting pressure on margins.”

Shah also said that the IT majors are expected to post a 3.7% quarter on quarter degrowth in net profit for the fourth quarter. Along with margin pressures, losses on account of hedging are likely to further pressurise their bottomlines. Some companies may even record negative growth, he added.

An analyst with Sharekhan said, “There is going to be a sequential decline in the revenues of topline companies on an organic basis, due to the adverse impact of lower volumes, IT budget cuts and slow ramp-ups, and pricing pressure and cross currency headwinds.”

Even in rupee terms, growth will be muted, since the currency’s depreciation will add only 2% sequentially on an average, he added.

He said that given the global turmoil, the focus will be on the guidance for fiscal 2010. The market is expecting close to 5% in decline in revenues (in dollar terms), largely based on the historical gap between the full year guidance of a few IT majors. In rupee terms, the market is expecting a flattish growth in revenues.

Going forward, the market is keenly watching the guidance for the current fiscal, as it will influence sentiments towards IT stocks, he added.