Top IT cos reinforce growth story as midcaps stumble

Mumbai, Aug 1 | Updated: Aug 2 2005, 05:30am hrs
Despite minor blips such as increase in salaries and rupee appreciation, top tech companies have reinforced the sectors growth story while midcaps have failed to make a mark in the quarter ended June 30.

Confidence in large cap companies has increased. But downward revision in the guidance of many midcap companies has shaken investor confidence, according to an analyst tracking the sector.

The results point to vendor consolidation in the market. As deal sizes increase, companies are preferring to go with large size vendors for their projects rather than smaller ones.

But we cannot conclude that the management of midcaps will not perform. However, it shows a significant trend towards vendor consolidation is emerging, he added.

Infosys Technologies, for instance, revised its fiscal 2006 guidance upwards to between Rs 8,947 crore and Rs 9,051 crore for income and between Rs 84.70 and Rs 86 for earnings per share (EPS). Satyam Computer Services upped revenue guidance to between Rs 4,536 and Rs 4,569 crore representing a growth of 29%-30%.

Wipro, which gives out only a quarterly guidance, forecast a 5.9% sequential growth in revenues for the September 2005 quarter to $422 million for its global IT business.

According to analysts, the June quarter has not thrown up any surprises for the fiscal. Long term, the outlook is bullish, says Harit Shah, analyst at Equitymaster.com, on prospects for the sector.

Operating margins for top tier companies are expected to be in the range of 25% to 30%. Infosys, Tata Consultancy Services, and Wipros IT business are expected to post slightly lower margins, while Satyam is expected to show improved margins compared to fiscal 2005.