India IT stocks rally on tax holiday extension

By Sumeet Chatterjee

BANGALORE, April 29 (Reuters) - Shares in India's leading export-driven software-services companies, including Infosys Technologies Ltd (INFY.BO) (INFY.O), rose sharply on Tuesday after the government extended a tax holiday scheme by a year. The expiry of the 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 percent from about 12-15 percent, industry analysts said.

"We are very happy with the announcement," Som Mittal, president of the leading IT lobby group, National Association of Software and Service Companies, or Nasscom, told Reuters. "This has come at the right time." 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 percent at 1,739.80 rupees in a Mumbai market .BSESN that was up 2.1 percent.

Top exporter Tata Consultancy Services (TCS.BO) had gained 2.8 percent to 908 rupees, third-ranked Wipro (WIPR.BO) was up 4.2 percent at 477 rupees, and No. 4 exporter Satyam Computer Services (SATY.BO) soared 7.7 percent to 477.10 rupees.

The sector index .BSEIT was up 4.7 percent.

"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. But 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. (Editing by John Mair)