India's much vaunted software companies have ridden the boom and bust of a volatile tech sector to produce bumper results year in year out for the past decade but as recent results suggest, the best may be over for them, analysts say. At the same time, that does not mean these successful companies deserve to be dumped unceremoniously, as many investors have done over the past few weeks, since they are still a solid investment proposition as they move up the globalisation pecking order.
The top firms - Tata Consultancy Services (TCS), Infosys Technologies, Wipro and Satyam Computer Services - have doubled revenues every two years for the past decade as companies from abroad hired them to run networks, handle administrative work and manage customers.
Those growth rates attracted investors from around the world eager to cash in as the companies built up hundreds of new customers and hired thousands of low-cost, high-skilled workers to deal with them.
Now the picture appears to have changed with the latest batch of quarterly results as the companies forecast growth rates in the current year of "only" around 30 percent.
Disappointed investors sold off heavily but analysts say that was a mistake.
"Growing at around 50 and 60 percent, which these companies were used to every two years in the past decade, will not be possible now," said Soumya K. Ghosh, an analyst at credit ratings agency ICRA Ltd "To that extent the growth may look slower at these companies but the overall software party will continue."
Fears of a slowdown in India's ability to get work from foreign companies was sparked when the largest outsourcing firm, TCS, said its fourth quarter or three months to March profit fell more than 30 percent.
Second-placed Infosys then announced a 67 percent jump in fourth-quarter profit but projected flat first-quarter revenue growth while Wipro, India's third-largest software company, declared just 1.6 percent profit growth in the period.
"These shares are not expected to see any substantial upward movement this quarter on the back of the flat guidance," said Hemal Shah, dealer with Dalal and Broacha Stock Broking.
The prospect of flat earnings and slower growth rattled investors used to steady gains from India's world-beating outsourcing giants with the top two companies annual revenues now approaching two billion dollars.
The Bombay Stock Exchange IT Index, which tracks 12 software stocks and accounts for nearly 20 percent of the total market capitalisation, is down 9.6 percent since April 1 after a gain of 57 percent in the fiscal year to March.
"After the earnings forecasts investors used to blazing performances turned sellers probably as a knee-jerk reaction but they are now slowly stabilising as they get used to the fact that growth will be slow and steady in the sector," said Prateesh Krishnan, analyst at state-owned SBI Mutual Fund.
The tone has also been dampened by bad news. A fraud case at a second-tier company, Mphasis, when customer service agents were arrested for getting hold of the personal accounts of Citibank customers and siphoning off 426,000 dollars before being caught rattled nerves.
The incident brought calls for tighter restrictions on allowing companies in India to get access to sensitive information from groups opposed to outsourcing but this should not detract from an overall positive outlook.
"The long-term story for the Indian software sector holds good and it will grow by 30 or more percent annually for the next few years despite (coming off) a large base," said Falgun Shah, technology analyst at leading mutual fund and brokerage Cholamandalam Securities.
Some analysts even think Indian companies will get more business if the US economy stalls because it may encourage more outsourced work.
The US market accounts for 69 percent of total earnings of the Indian companies, followed by Europe with 23 percent.
Japan, Singapore and Australia are slowly emerging as the next tier of prominent markets.
In a recent report, industry lobby group the National Association of Software and Service Companies, said it expected the sector to grow 31 percent this year.
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