Analysts expect fall in software stocks in FY2000 - Views on News from Equitymaster

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Analysts expect fall in software stocks in FY2000

Jun 12, 1999

The software sector is likely to witness a fall in net earnings growth this year, feel analysts. The average growth in net profit could be in the range of 40-50% as against 68% witnessed earlier. The net profits of leading software companies grew by an average 68% in FY99 led by Infosys, which posted an increase of 124% in its bottomline. Vijay Baoney, software analyst at Jardine Fleming says, 'Certainly, growth will slow down, but with the bigger players having a highly diversified business base, I am looking at a bottomline growth of 40-50% in dollar terms'.

Analysts expect new business opportunities arising from the Internet and e-commerce to help sales growth of 40% in FY2000 against an average growth of 46% in FY99. With growth opportunities drying up from Y2K development, most analysts feel that margins of companies like DSQ Software and Silverline Industries could come under pressure.

Analysts are divided over the issue of a shake out in the sector. P Krishnan, an analyst with a foreign firm ruled out the possibility. 'The size of the pie is too large for that to happen in a hurry, and anyway, unlike other sector, the bigger companies are not interested in acquiring the smaller companies. They are more interested in small firms in the US which helps them with presence', he said.

Analysts are unanimous on the view that companies will have to reorient their business plans due to aggressive recruitment over the past 2 years for the Y2K problem.

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