With a contracting IT spend, Indian vendors with just around 4-5 per cent market share are unlikely to grab a higher market share from key competitors (IBM, Accenture), which now have creditable Indian offshore centres, caution Enam analysts. Thus, existing utilisation rates may further decline, in turn, impacting margins.

This will not only impact volume growth and pricing, but could lead to a higher bench and debt write-off. The analysts note that a 2-3 per cent exposure to a bust client can impact PAT by 4-5 per cent. Thus, y-o-y growth rates have the potential to fall from around 20-25 per cent to approximately 15-16 per cent.

Religare analysts see volume growth of the firms ranging between 5 and 7 per cent. The revenue growth in rupee terms is projected at 6-9 per cent due to the sharp 10 per cent depreciation of the rupee against the dollar in the second quarter of FY09. Moreover, a major dampener during the quarter was the sharp appreciation of the dollar against the euro, pound, and the Australian dollar too. This is expected to impact the Q2 FY09 dollar revenues of IT players.

Edelweiss analysts conclude there are three factors that investors must pay attention to. First, specific leading indicators of a slowdown in tech spending in evidence since a slowdown in new licence software product sales (ERP) may translate into downstream impact on service providers (Indian IT companies) in two-three quarters' time as Indian IT companies get about 30-35 per cent of their revenues from package implementation from implementation of new licence.

(Source: Business Standard)