The valuations of Indian software services firms are rich compared to its global peers, but such value is justified given their better growth rates and prospects, said Citigroup Global Markets in a recent report post January-March earnings. "Management commentary across the sector remained positive. All the companies remain positive on the pipeline and the hiring remains robust. We believe that while 4Q was below expectations, the outlook remains strong, as highlighted by Infosys, Satyam guidance and management commentary from other majors.," it said.

Citigroup said growth of these companies will largely continue to be driven by gains in market share at a time when there are indications of relatively muted IT spending environment. "The market share data continues to be very volatile on a qoq (quarter-on-quarter) basis. Indian companies market share coming off could be explained by no large deal announcements in the quarter the previous quarter had witnessed the $1b announcement by Tech Mahindra," it said.
Citigroup prefers top-tier software firms such as Infosys Technologies, Tata Consultancy Services and HCL Technologies to the smaller ones. "Our view remains that companies with size, and a diversified presence across verticals and horizontals are better placed from a demand and supply perspective," the investment bank said.

On the impact of US slowdown, Citigroup said, "While we do continue to monitor it (US slowdown) closely, our view remains that a sharp slowdown could impact Indian IT services growth in the short run but a soft landing would not really impact growth rates."

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Prashanth Rai