>IT Sector update(MOTILAL OSWAL)

Downgrading estimates to factor ~13% cross currency movement in 3Q
Cross currency woes — worsening: Adverse impact of cross currency, has continued
into 3Q as well. We expect the impact of this phenomenon to hit 3Q US$ revenues if the
exchange rate for the GBP and Euro do not reverse in the latter half of 3Q.
While average depreciation of the GBP and Euro against the US$ was ~4% during
2QFY09, the depreciation has been sharper at ~13% in 3Q (until date). With nearly 50%
of working days already concluded in 3Q, we note that IT companies would not have
anticipated such sharp currency movements when they provided guidance in mid-October.
We believe this sharp cross currency movement will put pressure on 3QFY09 US$
revenue guidance of Infosys and Satyam, unless a sharp reversal occurs in the remaining
part of the quarter. The substantial volatility in key currencies across the globe versus
the US$ would mean IT companies effectively have to contend with an additional challenge
— cross currency — besides the existing ones such as global slowdown, hedging, pricing
pressure, outsourcing backlash, MNC competition etc. Infosys had guided for 3Q revenue
growth of 0.3% (upper end) QoQ at an assumption of 1.86USD/GBP and 1.36USD/
EUR. At the current rates, we believe 3QFY09 US$ revenues will be negatively impacted
by ~3%.

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