Tough summer for tech firms

Thu, 6 May 11:30 am

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The benchmark indices languished in the red during the last two hours of trade as debt fears in Europe mount. Strong selling is seen in stocks in the capital goods, auto and metals space. On the other hand, stocks from the healthcare and PSU space are trading firm. Stocks from the small cap space are also seeing some buying interest.

BSE-Sensex is trading lower by 104 points while NSE-Nifty is trading 35 points below the dotted line. BSE-Midcap Index is trading lower by 0.4%. BSE-Smallcap index is trading 0.3% above yesterday's closing. The rupee is trading at 45.16 to the US dollar.

As per a leading financial daily, India's top tech firms including Tata Consultancy Services (TCS), Infosys and Wipro are facing their toughest summer yet. As per reports, around 500 outsourcing contracts worth nearly US$ 37.5 m are set to expire by September this year. Each of these contracts are estimated to be worth anywhere between US$ 1 m to US$ 1 bn. The challenge lies in that these deals are smaller, competition tougher and cost cutting the primarily requirement of the client. As per reports, the biggest battles are likely to be for high value, multiyear contracts. These have till now been dominated by multinationals like IBM and HP. The reason for this is that that they are able to bundle services along with hardware products. They are even able to offer finance and credit options to customers. It may be noted that companies outsource the management of their desktops, computer servers, storage and communication infrastructure. This helps companies to reduce their operational expenses and focus better on their core businesses. All eyes are now on these deals as they will be an indication of revenue visibility in the coming few years.

Aventis announced its 1QFY10 results. The company's sales grew by 6.7% YoY during the quarter. This growth was aided by a 22% YoY growth in the company's core pharmaceutical business. However, the company's topline was impacted as exports fell by 6% YoY and no sales were recorded from the vaccine ‘Rabipur' during this quarter. Operating margins fell by 4.6% as raw material and staff costs increased as a percentage of sales. Net profits for the quarter fell by 11% YoY as a result of lower operating income and lower other income. The fall could have been steeper if not for lower tax expense for the quarter. We believe going forward, Aventis' presence in fast growing lifestyle segment and the focus on strategic brands would be the key growth drivers for the company.