News / India Ratings maintains 'stable' outlook on Indian software services sector
Jan 30, 2013

BANGALORE: India Ratings has maintained a 'stable' outlook on the Indian software services sector, mainly due to the strong cash balances of the information technology firms even as demand for outsourcing remains weak and wage inflation is likely to bring down profit margins.

The rating agency said it expects Indian IT providers to report muted revenue growth in 2013, but a robust liquidity position aided by high cash balances, low debt levels and positive cash flow from operations are expected to help. 

""Revenue growth in 2013 is likely to be at levels witnessed in 2012 due to lower ticket deals rather than mega deals. Multiple sourcing and increased competitiveness can lead to increased volatility in revenue growth for a few IT companies,"" the Mumbai-based agency said in a report on Wednesday. 

Over the past one year, Indian IT firms that mainly provide outsourcing services to clients in the US and Europe have been struggling to match the industry growth projection of 11-14% by industry body Nasscom. India Ratings said it expects IT providers to witness shorter contract lengths, which could lead to higher customer attrition rates and increased client acquisition costs for companies during the year. The agency, however, said it expects an improvement in employee utilisation levels and consulting businesses that contribute positively to the margins. 

""Any adverse regulatory developments that try to limit the ability of the US- or Europe-based companies to offshore/outsource contracts could also impact the sector's outlook negatively,"" the report said. 

The companies rated by India Ratings include IBM India, Infinite Computer Solutions, MindTreeBSE -0.70 %, IBS Software Services, Megasoft and Malvi Software Solutions.

Share this: