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Mumbai/Bangalore: Despite a host of factors that could affect the software business of Indian companies, analysts are cautiously positive on the sector ahead of the third quarter results.

Although the October-December quarter (Q3) is generally the weakest for most IT firms, since it has fewer working days, Q3 result is expected to show some decent growth in revenues because of increase in the volume of business for the IT services companies. And with the weakness of the US dollar against the rupee limited to just 1.5 per cent during the quarter, the growth of revenues could offset the effect of dollar's weakness, analysts say.

The full impact of the credit crisis and loan write-offs by banks in the US -— the largest software services market for Indian IT companies -— could come at later quarters.

While most of the top IT companies are expected to show single-digit growth for Q3, Wipro could be the exception and show lower margin growth. This is mainly because of its acquisition of Infocrossing, which has a lower-margin business and staggered salary hikes. Similarly, Patni could suffer due to lower manpower utilization, increased FBT and higher depreciation.

However, a Merrill Lynch report said Wipro would show relatively strong growth in revenues. On the margin front, IT companies could show an upward trajectory as annual salary hikes that usually come in March, get normalised during the next three quarters and productivity gains continue to filter through. However, this would be partially offset by appreciation of rupee against the dollar. Overall, according to analysts at JPMorgan, Infosys and TCS should show a margin increase of about 50 basis points.

 

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