The National Association of Software and Service Companies (Nasscom) said software exports grew 26.3 percent from a year ago to 9.5 billion dollars in the year to March. It originally set a 30 percent growth target for the period.

"Despite the challenges, such as a continued technology slowdown in the global market and the appreciation of the rupee, the industry has been able to maintain its growth momentum," Nasscom chairman Som Mittal told a media conference.

The rupee appreciated more than two percent against the US dollar in the past year. Last week, it closed at a two-year high of 46.90 to the US currency due to surging inflows from non-resident Indians and exporters.

Kiran Karnik, Nasscom president, warned the profit margins of software companies would continue to face pressure in the future due to a rising rupee.

"Medium-sized companies need to sharpen their focus and their unique selling proposition, or gain size to grow because margins will continue to face pressure as the rupee is expected to appreciate over the year," Karnik said.

"Margins will not go up and they are likely to get squeezed later in the year. If you are a general purpose player and not addressing niche markets you may have a problem," he added.

The growth in software exports, mainly to the United States and European markets, was mainly driven by call centre and business process outsourcing, according to Nasscom chairman Mittal.

"We have seen that this year too, the IT-enabled services and the business process outsourcing sector have continued their momentum, growing more than twice the industry average and (accounting for) a quarter of India's total IT software and services exports," he said.

"With the fundamentals and value-proposition of India as an IT destination being robust, we are optimistic about maintaining the growth trajectory," Mittal said.

Nasscom president Karnik said the US continued to be the top market for software exports, taking more than 70 percent of the total.

"But we are not dependent on the US. It is a mutually symbiotic relationship as we are partners. We have also moved up the value-chain with our supply of products to the US," Karnik said.

He said the Indian software industry was one of the few sectors globally to have witnesssed double digit growth.

"The (software) industry also increased its share of total Indian exports, from 4.9 percent in 1997 to 20.4 percent in March 2003," Karnik said.

India's software industry witnessed export growth of more than 50 percent in the 1990s but this has since fallen sharply due to the cut in global technology spending.

Nasscom said software and allied service exports would log revenues of more than 12 billion dollars in the current fiscal year to March 2004.

Indian shares closed 0.76 percent lower Tuesday partly on selling in the technology sector amid the sustained gain in the rupee.

India's bluechip Infosys Technologies led the fall by plunging 3.0 percent.

Analysts were also sceptical about IT firms being able to meet Nasscom's 12 billion-dollar target for 2004.

"The present quarter to June will be under tremendous pressure as the local currency has seen the maximum appreciation during this time," said Venkat Iyer, director of R.K Chary Stock Broking.

Chary added Nasscom's report that this year's earnings of software companies would be affected by a steady rise in the rupee had dampened market sentiments.

India has the largest pool of English-speaking IT professionals after the United States. This army, willing to work for one-eighth of the salaries of their counterparts in the United States and Europe, has fuelled the software boom in India.

At the same time, industry officials have warned that India's competitive advantage of being able to provide cheap labour to the software industry will come under serious threat in two years as its currency appreciates and salary costs rise.

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