>India IT Services (GOLDMAN SACHS)

Green shoots could turn to weeds, as growth prospects remain precarious. Still Cautious.

Industry context
We started 2009 with a clear view that the demand backdrop for Indian IT services would
remain weak for the year and that expectations remained too high. This view has essentially
proven out, with continued revenue and EPS reductions through the year. Since the beginning
of 2008 we have now trimmed our CY09 revenue expectations by an average of 28% and EPS by an average of 26%, while our CY10 average revenue reduction has come down 16%, and our EPS estimates have been reduced by 13% on average.

Source of opportunity
Despite reduced expectations, the Indian IT shares on both the local and ADR-listed side have
shown significant outperformance this year. We do not see the recent performance as sustainable given the lack of a turn in earnings, and which we believe remain susceptible to further downward revisions. Importantly, as a lagging model the Indian IT sector is not likely to lead a recovery, especially considering continued weakness in enterprise spending (note IBM, MSFT, SAP, etc.)

Maintain Cautious view on Indian IT
We maintain our Cautious coverage view on three factors: 1. Earnings are not at a trough, and
remain susceptible to reductions. 2. Stretched valuation on reduced growth expectations. 3.
Continued exposure to weak enterprise spending.

Estimate and price target changes
HCL Technologies—for FY09, our revised EPS est. is Rs.17.79. Our revised FY10/FY11 EPS ests. are now Rs.13.67/Rs.16.83. We raised our 12- month price target to Rs.120. Patni—for CY09, our revised USD EPS est. is now $0.95. For CY10/CY11, our revised EPS ests. now stand at $0.90/ $0.93. Our CY09/CY10/CY11 rupee EPS ests. are now Rs.24.8/Rs.23.5/Rs.25.47. Our 12-month price target is now $5.75 on the ADR, and Rs.144 on the local shares. Wipro—for FY10 and FY11, we trimmed our USD EPS ests. by $0.02 and $0.01 to $0.53 and $0.51. On a rupee basis, our FY10/FY11 EPS ests. are now Rs.25.54/Rs.24.09. Our 12-month price target is now $6.50 on the ADR, and to Rs.250 on the local shares.

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