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Firm rupee may hit India software firms

SECTOR SHOULD REPORT ROBUST EARNINGS

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India’s top software services companies should report robust quarterly earnings as they ride an outsourcin­g boom, but the outlook for the sector is clouded by a firming rupee and a possible US economic slowdown.

Analysts said the software and back-office services industry, which earns nearly 90 per cent of its revenue from overseas clients, will win more outsourcin­g jobs in the coming months from Western firms looking to cut costs at home.

But their ability to raise billing rates to offset higher wages or other costs may be limited because of the spectre of a US econ-omic slowdown, they said.

Together with a firming rupee, that could crimp profit margins. The currency has gained 1.2 per cent so far in April after rising 1.8 per cent in the March quarter.

“People are concerned about the business outlook for this year on the rising rupee and a potential US slowdown. The guidance, which is likely to be conservati­ve, will be an important signal for the market,” said Harmendra Gandhi, vice-president of research at Mumbai brokerage Brics Securities.

Analysts say a 1 per cent rise in the value of the rupee against the dollar shaves 30-50 basis points from operating margins of software services exporters.

But some say the rupee, overvalued on a tradeweigh­ted basis, may lose momentum and weaken in coming months.

“The risk of a correction either via market forces or by central bank interventi­on has increased,” said Singapore-based Bank of America strategist Han-Sia Yeo, who expects the rupee to weaken to 44 by endJune from around 42.88 now.

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