Indian IT Firms Need To Do Better To Keep Investors Interested

May 13, 2011

Indian outsourcing giant, Infosys, has reported strong growth by American standards for the 2011-12 period. However, going by Indian standards, revenue  growth needs to be higher if it wants to keep investors interested in the stock. The benchmark Bombay Stock Exchange was also lower by 1.6 percent.

Other outsourcing fimrs like Wipro and Cognizant Technological Solutions Corp. are also under scrutiny. Wipro, which is the same IT outsourcing space has reported a market cap of $36 billion. Wipro was down on the stock exchange at $14.20. It had a yearly trading range of $11.30 – $16.81.

Although Cognizant is headquartered in the U.S., it employs many Indian employees. Although its volume is trading high on the BSE, its shares have dropped to below $79 from $80.78 in previous trading and from a yearly trading range of $45 to $82.

Cognizant released figures that reflected Q4 ernings of $0.70 EPS per ADR following an increase in revenues of 23% at $1.6 billion. The firm also released a mixed guidance for Q1. Earnings are currently at $0.62 on expected revenues of approximately $1.64 billion. However, consultant firms are calling for expectations of $0.69.

In the fiscal year 2002, guidance for earnings is speculated at $2.83 per ADR and revenues are extrapolated to approximately $7.25 billion. Analyst firm, Thomson Reuters has predicted estimates of $3.1 EPS/ADR. Cognizant expects the demand for IT to come back to normal in the industry. What it means by normal is that the firm does not see a rise in business activity. It is in fact requesting shareholders and investors to trust an year that was filled with back end activities.

Despite the fact that summer is not traditionally a good period for IT, spending in software and hardware, requesting investors to stick to guidance appears to be a bad strategy, considering the way markets are changing.

Nonetheless, Infosys is still adding more people to its workforce with employees adding up to 9 this quarter to a stupendous 130,820 staff in total, reports 247wallstreet.com.


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