Software and IT Services sector Update, CSEC Research,

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Dear All,

Highlights:

·         IT large cap delivered decent numbers in a seasonally weak quarter

·         Mid cap companies were a mixed bag

·         Pricing continues to remain stable

·         Delay in decision making on discretionary projects, but no cancellation yet

·         Margins expansion largely aided by rupee depreciation against dollar

·         Amongst verticals Life science segment was under limelight

·         Increase in demand for Business Intelligence, Mobility and QATS services

·         Client addition continues to be strong

Outlook:

Macro environment continues to be challenging. IT budgets are likely to be flat, and clients are cautious in spending on discretionary projects; however vendor churn is likely to be the growth driver for Indian vendors.

Nasscom has indicated revenue growth for Indian IT companies to be in the range of 11% – 14% YoY in FY13, after factoring in global uncertainties and delay in decision making. We believe for FY13, revenue growth will be largely aided by volumes as pricing is likely to be flat and we expect the revenue growth of Tier I players to be in the range of 11.2% -17.2%.  Though in the medium term we retain our stand as “Cautiously Optimistic”, the recent run up in the stock price has turned our view to “Neutral” on the sector for the near term.

Regards,

CSEC Research