Mumbai, July 2: The Cassandras are predicting a rotten first quarter for the information technology players with their bottomlines battered by a triple whammy: a robust rupee, wage increases and higher visa costs.

On a day when Nasscom — the premier association for the industry — forecast that revenue from software services could rise 24 to 27 per cent to $49-50 billion in 2007-08, Citigroup warned of a stuttering start with a strong possibility that earnings margins would be gouged in the first quarter.

The foreign brokerage's prophecy comes just days ahead of the earnings period for the first quarter ended June 30. Bellwether Infosys Technologies will announce its results on July 11.

Surendra Goyal and Hitesh Shah said in a report that the first-quarter performance of IT companies would be disappointing. The bad run for the technology pack was predicted then on the negative impact that a rampant rupee would have on margins.

The Citigroup report said revenue growth in dollar terms would continue to be strong at 5 to 9 per cent quarter-on-quarter, but net profits would tumble by 10 per cent during the same period.

It also raised a red flag by signalling that some companies might revise their earnings per share (EPS) downwards.

“We believe that both Infosys and Satyam will be able to end 2007-08 with an EPS at least in line with what they had initially guided. However, companies like Infosys have historically been conservative on the guidance and, hence, we do not rule out a downward revision in 2007-08 EPS guidance post first quarter,” Goyal and Shah added.

Other analysts tracking the industry are of the opinion that though the impact of the rupee appreciation is visible in the current valuations of IT stocks, some disappointments could emanate from the first quarterly results.

“The key factor that we need to look out for is whether there will be any downward revision in the guidance, especially from Infosys,” said another analyst.

“This seems unlikely, but if it does happen, it will rock the entire IT sector.”

Infosys had earlier estimated its revenues to grow to $4 billion in the current fiscal.

While announcing its fourth-quarter results for the period ended March 31, 2007, the Bangalore-based company had forecast that for 2007-08, EPS before exceptional items could be between Rs 80.29 and Rs 81.58, a growth of 20 to 22 per cent over the year ended March 31, 2007. This is lower than the 53.5 per cent increase in its EPS for 2006-07.

For the entire year, Infosys forecast that its income would be in the range of Rs 17,038 crore to Rs 17,308 crore, a growth of 22.6 to 24.6 per cent, while income for the first quarter according to Indian GAAP was expected to be in the range of Rs. 3,896 crore to Rs 3,913 crore, a rise of 29.2 to 29.8 per cent.

Citigroup also points out that with around 15 per cent underperformance against the BSE sensex, “currency-related negatives are largely priced in many IT stocks”. It also recommended that at the present price, Infosys is a good entry, though it has under-performed the sensex by around 16 per cent over the past three months.

The brokerage added that this was because of the fact that it had led industry growth and that the company also had the strongest “margin levers” with both revenue per employee and pricing improving.