Indian outsourcers warn salary costs are rising

A strong set of financial results from India's IT companies come with cautionary words

Warnings about rising salaries have tempered a strong set of financial results from India's leading IT companies — Infosys, Satyam, Tata Consulting Services (TCS) and Wipro — on the back of continuing demand for offshore outsourcing services.

Wipro this week beat market predictions with a 44 percent rise in quarterly profits to $131.5m for the three months ending on 30 June, but its shares dropped by 5.5 percent after it warned wage rises will hit its 24.6 percent operating margin by 1.5 percent in the next quarter.

Wipro said it is also looking to continue building on the six acquisitions made in the first half of 2006, with more takeovers in Europe and the US.

Satyam, India's fourth largest IT company, today reported a whopping 75 percent jump in quarterly profit to $77m, but saw its share price fall after warning that rising salaries — due to increased competition for staff — would have an impact on its operating margins.

TCS, India's biggest IT company, had reported earlier this week that its quarterly profit rose by a third, to $185m, with a "very healthy" future outsourcing deal pipeline, and said it plans to add 30,500 new employees to its current 71,190 headcount this year.

Last week Infosys also reported strong figures with a 44 percent rise in quarterly profit to $174m.

The Indian IT outfits' results have been helped by the falling value of the rupee against the dollar.

Analyst house Ovum said in a briefing note that the results confirm the trend that growth of the Indian offshore outsourcers is slowing and margins are reducing, but it added that the numbers are still "very robust" and far ahead of traditional western competitors.