Satyam Computer Services lifted some of the gloom surrounding India's software services sector on Thursday when it posted flat quarterly earnings but gave a bullish outlook, reducing fears of sliding margins in a maturing industry.

Satyam, India's fourth largest software services exporter, cheered investors in Indian computing outsourcing stocks with a forecast of better-than-expected earnings growth. Its stock initially fell but later traded up six per cent, lifting the shares of its rivals.

The results came after its peers, Infosys and Wipro, posted disappointing earnings earlier this month and warned of sliding profit margins amid increased competition.

"Overall, the results do not appear to be as bad as the market was expecting. Hence, it has taken away some gloom," said Anil Sarin, a technology fund manager with Birla Sun Life Securities.

The warnings had raised fears that the boom in outsourcing of computing services to India, where wages are lower than in Europe and North America, is fizzling out as costs and competition rise.

Satyam, which counts General Electric as its top client, forecast its earnings per share this year would grow seven to 10 per cent and income from software services would rise 15 to 17 per cent in dollar terms.

"The real positive is in the guidance, which looks very good although slightly ambitious," said Mahesh Vaze, software analyst at Refco-Sify Securities.

US-listed Satyam, which has 270 clients, posted a profit, before exceptional items, of Rs 116 crore (Rs 1.16 billion) in the fourth quarter ended March 31, against Rs 115 crore (Rs 1.15 billion) a year earlier. Revenues rose 14.5 per cent to Rs 553 crore (Rs 5.53 billion), but higher staff and marketing costs kept underlying profits flat.

This was in line with the median analyst forecast in a Reuters poll for net profit of Rs 117 crore (Rs 1.17 billion) and revenue of Rs 540 crore (Rs 5.4 billion).

Big exceptional write-off

Satyam's shares initially fell nearly eight per cent immediately after the firm first reported a quarterly net loss after exceptional items of Rs 35.916 crore (Rs 359.16 million), compared with a profit of Rs 74.401 crore (Rs 744.01 million) a year earlier.

But this was after a write-off of Rs 152 crore (Rs 1.52 billion), including Rs 126 crore (Rs 1.26 billion) for the loss in value of an investment in a subsidiary.

Satyam, based in Hyderabad, had cut its earnings estimates in January for the just-ended fiscal year as its top clients mostly from the manufacturing segment, reduced orders in an uncertain business environment.

The company was set up more than a decade ago by chairman Ramalinga Raju, 46. His technology start-up has overwhelmed his family's small textile and construction business with high growth.

Earnings in the sector have also been hit by a strengthening Indian currency, which gained nearly three percent against the US dollar in the past year. Most Indian software service exporters earn more than 60 percent of their revenue from the United States.

 (With additional reporting by Umesh Desai and Denny Thomas)