Services PMI contracts to 49.8 in September

Commenting on the survey, Leif Eskesen, chief economist for India & ASEAN at HSBC said, "The slowdown in growth has continued to broaden with the service sector seeing a further slowdown in economic momentum, especially for financial intermediation"

India's services sector fell for the first time in more than two years on the back of a slowdown in services activity, the HSBC Service Sector Business Activity Index showed. The Services PMI (Purchase Managers' Index) posted 49.8 last month from 53.8 in August. The latest reading is the lowest since April 2009. An index reading above 50 indicates an overall increase in that variable, below 50 points to an overall decrease.

Indian service companies were optimistic in September that activity would rise over the next year, supported by marketing initiatives and the high quality of services provided. However, the degree of positive sentiment fell for the third month running and was below the historical average for the series.

Meanwhile, the manufacturing PMI for September stood a tad higher at 50.4 in September, down from of 52.6 in the previous month, data released on Monday showed. The latest reading was the weakest in the current two-and-a-half year sequence of growth.

Commenting on the India Services PMI survey, Leif Eskesen, chief economist for India & ASEAN at HSBC said, "The slowdown in growth has continued to broaden with the service sector seeing a further slowdown in economic momentum, especially for financial intermediation."

"Backlogs of work are still rising, but at a slower pace, and employment fell in response to the deceleration in new order growth as well as staff leaving because of unmet wage demands. However, inflation pressures remain firmly in place. We are getting close to the end of RBI's tightening cycle, but we are not quite there yet," he added.

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Indian IT services sector earnings preview: Lacklustre quarterly performance expected

The depreciating rupee, weak macroeconomic global environment, squeeze on margins and wage-hike related costs may cause strong headwinds

With the top four IT companies expected to report sub-6% q-o-q (quarter-on-quarter) dollar revenue growth (versus a figure close to 8% in Q1FY12 and 6%-12% in Q2FY11), it is expected that Q2FY12 will be a weak quarter in light of otherwise favourable seasonality. Infosys is likely to lower its FY12 dollar revenue growth guidance by 2% (from 18%-20% y-o-y, i.e., year-on-year), which will be a key negative, underlining the weakness in demand. These are the observations and findings of an IDFC report on the subject.

It is expected that dollar revenue growth will be in the range of 3.4%-6.5% q-o-q across Tier-1 IT companies, with Cognizant and TCS (Tata Consultancy Services) leading revenue growth. Infosys and Wipro are expected be in line with guidance. The impact of the recent economic slowdown is unlikely to be visible in results this quarter, according to Nomura Equity Research.
 
According to PINC Research, the IT sector's Q2FY12 results will reflect good revenue growth and margin improvement, but forex losses will dent the profits as a result of significant rupee depreciation in quarter-end rates. However, rupee depreciation will help in better margins in Q2FY12 and can sustain in Q3 if the rupee remains weak.

It is expected that Tier-2 companies will report 1%-5% dollar revenue growth (versus about 5% in Q1FY12 and about 9% in Q2FY11). While rupee depreciation (about 4% on a monthly average basis and about 2% on a daily average basis) would be a key margin tailwind for the entire coverage universe in the quarter, wage hike-related headwinds for a few can also be observed. With rising macroeconomic uncertainty, most companies in the sector will incrementally cite caution.

IDFC expects the top four IT services companies to report muted results despite the seasonal strength. Sequentially, HCL Technologies, TCS and Infosys are estimated to deliver 5%-6% dollar revenue growth (versus 10%-12% in Q2FY11) and Wipro may report about 4% (versus 6% in Q2FY11). Revenues for all would be volume-driven with some decline in price realisation-about 70bps (basis points) due to cross-currency headwinds). The recent sharp rupee depreciation will be a key margin tailwind for all. Infosys is expected to report the highest margin expansion of about 80bps, followed by about 90bps by TCS (headwinds from promotion-related costs). Wipro and HCL Tech are likely to deliver a margin decline of about 80bps to120bps due to two months and full quarter wage hike impact, respectively.

Dull revenue growth and modest margin improvement in Tier-2 companies are likely to deliver a modest 2%-5% q-o-q revenue growth and about 100bps q-o-q margin expansion. While most Tier-2 companies have significantly lost margins over the past 3-4 quarters, margins could expand for Q2FY12 driven by a weaker rupee, operational efficiencies and broadening employee pyramid. Majority of the companies are also expected to witness a decline in attrition rates amidst the macroeconomic uncertainties. Tech Mahindra is expected to report margin decline of about 150bps due to the impact of wage hikes.
 
According to Nomura, HCL Technologies is expected to be the top performer within Tier-1 IT companies on expectations of strong revenue growth (5.4% q-o-q); lower EBITDA (earnings before interest, tax, depreciation and amortisation) margin declines despite wage hikes and rupee depreciation; it is also expected to receive a boost due to reasonable valuation comfort. TCS and Cognizant have high BFSI exposure and client concentration. Further, both tech giants have a high exposure to Europe, which is a negative considering the debt problems plaguing the continent.

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Illegal mining may lead to closure of legal mines: Goa PAC report

The report says that illegal mining has resulted in strain on infrastructure, ecology, agriculture and threatens to destroy the water security of the state if it is not controlled immediately

Panaji: Goa assembly's Public Accounts Committee (PAC) is understood to have expressed fears that if illegal mining in the state is not curbed, even the legal mines here will face closure, reports PTI.

The PAC report, which will be tabled in the House during the assembly session that begins from today, has reportedly indicted the state government for allegedly encouraging illegal mining.

It is learnt that the report says that illegal mining has resulted in strain on infrastructure, ecology, agriculture and threatens to destroy the water security of the state if it is not controlled immediately.

"During the series of meetings, the PAC observed that the overburden of illegal mining is damaging the prospects of legal mining," the source stated.

The PAC report, which has relied on the data provided by Directorate of Mines and Geology (DOMG) and the Forest Department, has calculated that annually around 20 million tonnes of ore is exported from the state.

"The total value of the ore that is mined in violation of the law on mining and environment exceeds Rs4,000 crore annually," highly placed sources stated.

It is learnt that the report has directly indicted politicians and officers from the Mines as well as the Forest Department, including their secretaries and director of Mines Department.

According to sources, the report says that details like involvement of politicians, quantum of illegalities and financial transactions, etc. can only be known after a thorough investigation.

The report is understood to have recommended that an independent agency like the Central Bureau of Investigation (CBI) or Lokayukta be asked to probe into illegal mining nexus being carried out in connivance of local politicians, bureaucrats of the Mines and Forest departments and police force.

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