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IT companies get a reality check

 
Nilekani: growing the business
volumes of Infosys has not been a
problem but margins have been
put under pressure


The Indian stock markets fundamentally reassessed Indian information technology stocks last month. Jolted by a sharp fall in profit margins and a profit warning for the next fiscal year from Infosys, the bellwether for Indian IT companies, the stock sank.   The market capitalization of Indian IT stocks has shrunk by over a third this year to Rs662.8 billion ($14 billion) on April 24, tipping the 30-share Bombay Stock Exchange Sensex to a six-month low. That is likely to lead to the postponement of an initial public offering by Tata Consultancy Services, the biggest exporter of Indian software services, which has been trying to list for over a year now.

The heady growth of the Indian IT industry in the late 1990s attracted a large chunk of the $15.9 billion that foreign portfolio investors have invested in India, as well as about $2 billion that came in from foreign private-equity funds.

Rapid growth encouraged investors to ignore what ought to have been clear warning signals of an impending market adjustment: the economic slowdown in the US and Europe, the biggest markets for Indian IT services; the appreciation of the rupee against the dollar last year; and bad political news starting from the war-like situation with neighbouring Pakistan and continuing with the US-led invasion of Iraq and Sars.

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