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After difficult year, Indian IT braces for US slowdown

After weathering a tough 2007, India's flagship IT companies face the spectre of a US economic slowdown squeezing profits as they start unveiling earnings this week, analysts say.

Software firms such as Tata Consultancy, Infosys and Wipro were last year roiled by the rupee's steepest appreciation against the dollar in three decades, surging wages and real-estate values and the end of a tax holiday.

Now come possible cutbacks in the information-technology budgets of US clients preparing to tighten their belts as a housing slump, tighter credit and high energy costs take their toll on the world's biggest economy.

"The negative view is that US corporate budget growth will slow and we won't see as much demand for outsourcing and offshoring as we saw last year," said Suveer Chainani, technology analyst at Macquarie Capital Securities in Mumbai.

Clues to the extent of the fallout may surface when Infosys, a Bangalore-based pioneer of the software industry, kicks off the corporate earnings season on Friday by announcing its fiscal third-quarter results.

Investors hammered the shares of IT companies last year as the bad news kept piling up. IT stocks trailed the benchmark Sensex by more than 40 percent in 2007 and no relief is seen by analysts in 2008.

"The rising risk of an IT spending slowdown raises the hurdles on a 12-month view and we remain underweight Indian tech," investment house CLSA said in report.

"Barring periodic deviations, we see absolute long-term annual stock returns of 10-12 percent, down from the heady 30-40 percent of the past," CLSA analysts Bhavtosh Vajpayee and Nimish Joshi said in the report.

Sentiment remains negative although IT firms have remained profitable. TCS, India's biggest software services exporter, reported a second-quarter net profit jump of nearly 23 percent to 12.51 billion rupees (318 million dollars).

Infosys saw its profit in the quarter ended September 30 rise 18.4 percent to 11 billion rupees. Wipro's profit climbed 18 percent to 8.237 billion rupees. The United States is the biggest market for Indian software and service exports which jumped 33 percent to 31.4 billion dollars in the year ended March and are forecast by the industry grouping Nasscom to reach 60 billion dollars by 2010.

The industry has been at the forefront of India's strong economic growth, benefiting from work farmed out by cost-cutting global companies to take advantage of India's vast engineering talent pool and low labour costs.

But last year took the sheen off the sector as it reeled from a 12 percent rise in the value of the rupee against the dollar, an 18 percent jump in wages and increasing rental costs and real-estate valuations.

The government also last year extended a 13.3 percent tax to export earnings. The tax previously only applied to local profits.

The rupee's rise caused the biggest hit, reducing the local equivalent of every dollar earned by an industry whose expenses are almost all incurred in rupees.

"The rupee is the biggest issue because currency movements are not in the hands of the industry," said Tejas Doshi, analyst at Sushil Finance.

AFP

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McDonald's getting fat on Britons' love of fast-food: report

US fast-food giant McDonald's is selling more burgers in Britain than at any time in the 34 years since it opened its first outlet here, The Times said Monday, quoting company figures.

The newspaper said there were more than 88 million visits to the "golden arches" in Britain in December 2007 alone, up nearly 10 million on the previous 12 months and the equivalent of about 320,000 more each day.

The findings follow a study by pollsters Synovate in conjunction with the BBC published January 2, which suggested that Britons are now the world's biggest fans of fast food, just ahead of Americans.

McDonald's UK chief executive Steve Easterbrook was quoted as saying that the fast-food business had stalled in the wake of recent British government initiatives to target a growing obesity epidemic with healthy eating schemes.

But he said in an interview: "This is one of our strongest years for 20 years, and we feel pretty confident about the momentum we have built up."

McDonald's has changed its menu in recent years, cutting salt, sugar and trans-fats in its products and offering healthier alternatives such as porridge, fruit smoothies and chicken wraps.

AFP

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UAE economy to show 16.5 pct nominal growth in 2007: report

The United Arab Emirates' economy is due to grow by 16.5 percent in nominal terms in 2007, exceeding International Monetary Fund expectations, the economy ministry said in a report on Sunday.

Although final figures for 2007 are not yet in, Gross Domestic Product (GDP) is expected to reach 698 billion dirhams (190.03 billion dollars) compared with 599.2 billion dirhams (163.13 billion dollars) in 2006, the report said.

The IMF had predicted the GDP of the oil-rich monarchy would reach 679.1 billion dirhams (184.9 billion dollars) in 2007, said the report which was quoted in the English-language daily Emirates Business 24/7.

In 2006, the UAE economy grew by 23.5 percent in nominal terms and 9.4 percent in real terms, the report said. But inflation remained high, with the IMF predicting it would reach 8 percent in 2007, slightly lower than the 9.3 percent recorded in 2006.

The UAE's non-oil sector is also expected to grow by 21 percent in 2007, making up 65 percent of GDP, the report said.

The UAE has the world's fifth largest proven reserves of crude oil - 97.8 billion barrels - and ranks fourth among the members of the Organisation of Petroleum Exporting countries (OPEC). It also ranks fourth in terms of global gas reserves with 212 trillion cubic feet of natural gas.

AFP

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Singapore Airlines stands by offer for China Eastern

Singapore Airlines (SIA) stuck to its position Monday, saying its offer to invest in China Eastern Airlines (CEA) at 3.80 Hong Kong dollars (45 US cents) a share is one that will bring long-term benefits to the Shanghai-based carrier.

SIA's plans to acquire a stake in the struggling Chinese carrier face a potential setback when CEA minority shareholders meet Tuesday to vote on the deal amid growing rumblings the offer price severely undervalues the company.

Air China's parent firm, China National Aviation Corp. (Group) Limited, said Sunday it was ready to pay at least five Hong Kong dollars a share if CEA minority shareholders rejected SIA's offer on Tuesday.

"The strategic partnership proposed by China Eastern, Singapore Airlines and Temasek is a long-term one," said SIA spokesman Stephen Forshaw.

"It is not a financial trade. Its approval by CEA minority shareholders this week will, in our view, be positive for the prospects of China Eastern's share prices.

"We stand by that proposal. Our position is very clear and we have been consistent on it."

SIA and the Singapore state-linked investment firm Temasek signed a preliminary agreement in September to take a combined 24 percent stake in China Eastern for 923 million US dollars, or 3.80 HK dollars a share.

The deal sparked intense jockeying over China Eastern's fate, with Air China and its strategic partner, Hong Kong-based Cathay Pacific Airlines, subsequently making, and then withdrawing, a counter-offer.

The tussle reflects the intense competition for a piece of the China aviation market, particularly the lucrative Shanghai-Hong Kong routes plied by China Eastern.

Air China's parent firm, which owns about 12 percent of China Eastern's Hong Kong-listed shares, said it also plans to form a strategic partnership with China Eastern Airlines if the Singapore deal falls through.

The parent firm also said last week it intended to reject the Singaporean offer at Tuesday's shareholders' meeting if the bid, which it said undervalued the Chinese airline, was not improved.

AFP