Short-term pain seen for Indian software firms

By CNN's Kristie Lu Stout and wire reports

BANGALORE, India (CNN) -- Indian software firms are feeling the burn from the U.S. tech fallout, but analysts say the pain will be short-lived.

Worries of a slowdown in earnings growth for the April-June quarter have rocked the share prices of India's top software services firms.

But fortunes may turn around as outsourcing revenues from the U.S. are expected to kick in by the end of the fiscal year.

Growth forecasts slashed

Due to the slowdown in the U.S., leading Indian software services firm Infosys forecast 30 percent revenue growth this year, down from the 90 percent average of the last four years.

Infosys' share price has plummeted over 45 percent from the year's high of 6,988 rupees.

Despite the doom, investment bank Merrill Lynch has put Infosys in a list of top 23 tech shares to own in the long-term.

Infosys also is expected to benefit from the U.S. tech slump as American firms shift work to India, taking advantage of the country's low-cost and high-quality services.

Indian software and software services exports are expected to grow by 40 to 45 percent this year -- a forecast set by India's National Association of Software and Service Companies (NASSCOM).

In contrast, the IT services industry in the U.S. -- with an estimated 12 percent growth rate -- seems virtually stagnant.

"The growth is still very much there," said Salomon Smith Barney Indian IT services analyst Rahul Dhruv on the Indian software sector. "But there will be pain in the first two quarters."

Outsourcing payback on the horizon

Indian IT firms are not slated to benefit from outsourcing until companies in the U.S. and elsewhere have had adequate time to establish their outsourcing requirements.

"To shut work down in-house and ship it offshore takes time," said Dhruv. "It's a process that needs a period of 6 to 9 months."

"The due diligence is starting now and the outsourcing revenue won't be seen until the end of the year."

Nor is the outsourcing market India's alone. Competition exists from countries like Ireland and even Lithuania.

But India has established itself as the top target of outsourcing services, offering customers an opportunity to benefit from its well-educated workforce and low wages.

The country's leading software companies will start releasing results for the April-June quarter by early July.

Infosys and Satyam Computer led Monday's broad market losses in Mumbai on worries over a slowdown in profit growth. Infosys fell 3.63 percent while Satyam was down 6.75 percent in midday trading.

Reuters contributed to this report.