Bangalore: Shares in India’s leading export-driven software-services companies, including Infosys Technologies Ltd rose sharply on 29 April after the government extended a tax holiday scheme by a year.
The expiry of tax holiday for Indian outsourcers based in technology parks was pushed out to March 2010 from March 2009.
The original expiry date would have pinched earnings of top companies from the following fiscal year by raising their tax rates to 18-22% from about 12-15%, industry analysts said.
“We are very happy with the announcement. This has come at the right time,” Som Mittal, president of the leading IT lobby group, National Association of Software and Service Companies (Nasscom), told Reuters.
At 0800 GMT, shares in Infosys, India’s second-largest software services exporter with a market value of about $24 billion, were up 4.5% at Rs1,739 in a Mumbai market that was up 2.1%.
Tata Consultancy Services, Wipro and Satyam Computer also logged gains. The BSE index was up 4.7%.
“This is obviously a good news for the industry, especially at a time when they are facing problems because of the weakness in the U.S. economy,” said Tejas Doshi, head of research at Sushil Finance in Mumbai.
Helped by an army of English-speaking workers and cheaper wages, India’s estimated $64 billion software services sector has thrived by winning deals from overseas clients, with the United States accounting for more than half of the sector’s revenue.
However, profit growth at the software firms has slowed sharply in the last couple of quarters as a slowdown in the U.S. economy crimped outsourcing contracts and a stronger rupee hurt margins.
“The move to extend the tax holiday by a year will soften the blow for the companies and end uncertainty about the policy as well, but one needs to look at whether the government will extend it further or its the final extension,” Doshi said.
The government announced the tax holiday for the units located in technology parks in April 2000, in a policy aimed at encouraging growth in the showcase sector.
Software services firms in the parks pay taxes only on the business they get from India. Most of them get more than three-quarter of their revenue from exports.