<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

For the quarterly period ended March 31, 2006 or

[ ]  Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the transition period from ____________ to _____________

Commission file number 0-22903

                                  SYNTEL, INC.
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                                          <C>
                     Michigan                                     38-2312018
         (State or Other Jurisdiction of                        (IRS Employer
          Incorporation or Organization)                     Identification No.)
</TABLE>

<TABLE>
<S>                                                               <C>
525 E. Big Beaver Road, Suite 300, Troy, Michigan                   48083
     (Address of Principal Executive Offices)                     (Zip Code)
</TABLE>

                                 (248) 619-2800
              (Registrant's Telephone Number, Including Area Code)

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes   X     No
    -----      -----

     Indicate by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large Accelerated Filer       Accelerated Filer  X    Non-Accelerated Filer
                        ---                     ---                         ---

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act.)

Yes         No   X
    -----      -----

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

Common Stock, no par value : 41,006,874 shares issued and outstanding as of
April 26, 2006.


                                       1

<PAGE>

                                  SYNTEL, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Part I  Financial Information

   Item 1 Financial Statements
      Condensed Consolidated Statements of Income                             3
      Condensed Consolidated Balance Sheets                                   4
      Condensed Consolidated Statements of Cash Flows                         5
      Notes to the Condensed Consolidated Financial Statements                6
   Item 2 Management's Discussion and Analysis of
          Financial Condition and Results of Operations                      17
   Item 3 Quantitative and Qualitative Disclosures about Market Risk         22
   Item 4 Controls and Procedures                                            23

Part II  Other Information                                                   24

Signatures                                                                   25

Exhibit - Certificate of Chief Executive Officer                             27

Exhibit - Certificate of Chief Financial Officer                             28

Exhibit - Certification of Chief Executive Officer and Chief Financial
   Officer                                                                   29
</TABLE>


                                       2

<PAGE>

                          SYNTEL, INC. AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED
                                                    MARCH 31,
                                               ------------------
                                                  2006      2005
                                                -------   -------
<S>                                            <C>        <C>
Net revenues                                    $63,496   $50,732
Cost of revenues                                 39,162    29,704
                                                -------   -------
GROSS PROFIT                                     24,334    21,028
Selling, general and administrative expenses     10,598    11,165
                                                -------   -------
Income from operations                           13,736     9,863
Other income, principally interest                  889     1,136
                                                -------   -------
Income before income taxes                       14,625    10,999
Provision for income taxes                        2,570     2,005
                                                -------   -------
NET INCOME                                      $12,055   $ 8,994
                                                =======   =======
Dividend per share                              $  0.06   $  1.56

EARNINGS PER SHARE:
Basic                                           $  0.30   $  0.22
Diluted                                         $  0.29   $  0.22

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic                                            40,696    40,366
Diluted                                          40,948    40,526
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.


                                       3
<PAGE>

                          SYNTEL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                             MARCH 31,   DECEMBER 31,
                                                                                2006         2005
                                                                             ---------   ------------
<S>                                                                          <C>         <C>
                                     ASSETS

Current assets:
   Cash and cash equivalents                                                  $ 85,880     $ 99,390
   Short term investments                                                       27,303       21,083
   Accounts receivable, net of allowances for doubtful accounts of $2,575
   and $2,575 at March 31, 2006 and December 31, 2005, respectively             30,680       27,907
   Revenue earned in excess of billings                                         12,818        8,366
   Deferred income taxes and other current assets                               11,252       10,003
                                                                              --------     --------
      Total current assets                                                     167,933      166,749
Property and equipment                                                          57,119       54,690
   Less accumulated depreciation and amortization                               26,530       25,504
                                                                              --------     --------
      Property and equipment, net                                               30,589       29,186
Goodwill                                                                           906          906
Deferred income taxes and other non current assets                               3,415        1,320
                                                                              --------     --------
   TOTAL ASSETS                                                               $202,843     $198,161
                                                                              ========     ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

   LIABILITIES
Current liabilities:
   Accounts payable                                                           $  5,706     $  6,890
   Accrued payroll and related costs                                            14,544       15,906
   Income taxes payable                                                          6,910        9,809
   Accrued liabilities                                                           7,605        7,446
   Deferred revenue                                                              2,531        3,356
   Dividends payable                                                             2,480        2,476
                                                                              --------     --------
      Total current liabilities                                                 39,776       45,883

   SHAREHOLDERS' EQUITY
Total shareholders' equity                                                     163,067      152,278
                                                                              --------     --------
      TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                              $202,843     $198,161
                                                                              ========     ========
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.


                                       4

<PAGE>

                          SYNTEL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                                                               MARCH 31,
                                                                          -------------------
                                                                            2006       2005
                                                                          --------   --------
<S>                                                                       <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                             $ 12,055   $  8,994
   Adjustments to reconcile net income to net cash
      provided by operating activities
      Depreciation and amortization                                          1,174      1,036
      Realized gains on sales of short term investments                        (53)      (319)
      Deferred income taxes                                                    143         (1)
      Compensation expense related to restricted stock                         239        685
      Share based compensation expense                                         206         --
   Changes in assets and liabilities:
      Accounts receivable and revenue earned in excess of billings, net     (7,245)    (3,330)
      Other current assets                                                  (3,340)    (2,048)
      Accrued payroll and other liabilities                                 (4,581)     2,328
      Deferred revenues                                                       (828)      (592)
                                                                          --------   --------
Net cash (used in) / provided by operating activities                       (2,230)     6,753
                                                                          --------   --------
CASH FLOWS  FROM  INVESTING ACTIVITIES:
      Property and equipment expenditures                                   (3,169)    (2,448)
      Purchase of short term investments :
         Investments in mutual funds                                           (14)    (2,985)
         Investments in term deposits with banks                           (14,953)    (4,266)
      Proceeds from sales of short term investments :
         Proceeds from sales of mutual funds                                 6,754     12,320
         Maturities of term deposits with banks                              2,274     17,543
                                                                          --------   --------
Net cash (used in) / provided by investing activities                       (9,108)    20,164
                                                                          --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Net proceeds from issuance of common stock                               253      2,133
      Common stock repurchases                                                  --       (676)
      Dividends paid                                                        (2,443)   (63,546)
                                                                          --------   --------
Net cash used in financing activities                                       (2,190)   (62,089)
                                                                          --------   --------
Effect of foreign currency exchange rate changes on cash                        18        (78)
Change in cash and cash equivalents                                        (13,510)   (35,250)
Cash and cash equivalents, beginning of period                              99,390    109,142
                                                                          --------   --------
Cash and cash equivalents, end of period                                  $ 85,880   $ 73,892
                                                                          ========   ========
Non cash investing and financing activities:
Cash dividends declared but unpaid                                        $  2,480   $  2,446
                                                                          ========   ========
Cash paid for income taxes                                                $  6,379   $  4,044
                                                                          ========   =========
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.


                                       5
<PAGE>

                          SYNTEL, INC. AND SUBSIDIARIES

            NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION:

The accompanying condensed consolidated financial statements of Syntel, Inc.
(the "Company" or "Syntel") have been prepared by management, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position of Syntel and
its subsidiaries as of March 31, 2006, the results of their operations for the
three month periods ended March 31, 2006 and 2005, and cash flows for the three
months ended March 31, 2006 and March 31, 2005. The year end condensed balance
sheet as of December 31, 2005 was derived from audited financial statements but
does not include all disclosures required by accounting principles generally
accepted in the United States. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2005.

Operating results for the three months ended March 31, 2006 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2006.

2. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION

The consolidated financial statements include the accounts of Syntel, Inc.
("Syntel"), a Michigan corporation, its wholly owned subsidiaries, and a joint
venture. All significant inter-company balances and transactions have been
eliminated.

The wholly owned subsidiaries of Syntel, Inc. are:

-    Syntel Limited ("Syntel India"), an Indian limited liability company
     formerly known as Syntel (India) Ltd.;

-    Syntel Singapore PTE. Ltd. ("Syntel Singapore"), a Singapore limited
     liability company;

-    Syntel Europe, Ltd. ("Syntel U.K."), a United Kingdom limited liability
     company;

-    Syntel Canada Inc. ("Syntel Canada"), an Ontario limited liability company;

-    Syntel Deutschland GmbH ("Syntel Germany"), a German limited liability
     company;

-    Syntel Hong Kong Ltd. ("Syntel Hong Kong"), a Hong Kong limited liability
     company;

-    Syntel (Australia) Pty. Limited ("Syntel Australia"), an Australian limited
     liability company;

-    Syntel Delaware LLC ("Syntel Delaware"), a Delaware limited liability
     company;

-    SkillBay LLC ("SkillBay"), a Michigan limited liability company;

-    Syntel (Mauritius) Limited ("Syntel Mauritius"), a Mauritius limited
     liability company;

-    Syntel Consulting Inc ("Syntel Consulting"), a Michigan corporation;

-    Syntel Sterling BestShores (Mauritius) Limited ("SSBML"), a Mauritius
     limited liability company; and

-    Syntel Worldwide (Mauritius) Limited ("Syntel Worldwide"), a Mauritius
     limited liability company.

The formerly wholly owned subsidiary of Syntel Delaware (as of December 31,
2004) that became a partially owned joint venture of Syntel Delaware LLC on
February 1, 2005 is:

-    Syntel Solutions (Mauritius) Ltd. ("Syntel Solutions"), a Mauritius limited
     liability company.

The wholly owned subsidiary of Syntel Solutions is:

-    Syntel Sourcing Pvt. Ltd. ("Syntel Sourcing"), an Indian limited liability
     company.

The wholly owned subsidiaries of Syntel Mauritius are:

-    Syntel International Pvt. Ltd. ("Syntel International"), an Indian limited
     liability company; and

-    Syntel Global Pvt. Ltd. ("Syntel Global"), an Indian limited liability
     company.

The wholly owned subsidiary of SSBML is:

-    Syntel Sterling BestShores Solutions Private Limited" ("SSBSPL"), an Indian
     limited liability company.


                                       6

<PAGE>

3. USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Such estimates include, but are not limited to allowance for
doubtful accounts, impairment of long-lived assets and goodwill, contingencies
and litigation, the recognition of revenues and profits based on the
proportional performance method and potential tax liabilities. Actual results
could differ from those estimates and assumptions used in the preparation of the
accompanying financial statements.

4. REVENUE RECOGNITION

The Company recognizes revenues from time and material contracts as the services
are performed.

Revenue from fixed-price applications management, maintenance and support
engagements is recognized as earned which generally results in straight-line
revenue recognition as services are performed continuously over the term of the
engagement.

Revenue on fixed-price, applications development and integration projects in the
Company's application outsourcing and e-Business segments are measured using the
proportional performance method of accounting. Performance is generally measured
based upon the efforts incurred to date in relation to the total estimated
efforts to the completion of the contract. The Company monitors estimates of
total contract revenues and cost on a routine basis throughout the delivery
period. The cumulative impact of any change in estimates of the contract
revenues or costs is reflected in the period in which the changes become known.
In the event that a loss is anticipated on a particular contract, provision is
made for the estimated loss. The Company issues invoices related to fixed price
contracts based on either the achievement of milestones during a project or
other contractual terms. Differences between the timing of billings and the
recognition of revenue based upon the proportional performance method of
accounting are recorded as revenue earned in excess of billings or deferred
revenue in the accompanying consolidated balance sheets.

Revenues are reported net of sales incentives.

Reimbursements of out-of-pocket expenses are included in revenue in accordance
with Emerging Issues Task Force Consensus ("EITF") 01-14, "Income Statement
Characterization of Reimbursement Received for 'Out of Pocket' Expenses
Incurred".

5. CASH AND CASH EQUIVALENTS

For the purpose of reporting Cash and Cash Equivalents, the Company considers
all liquid investments purchased with an original maturity of three months or
less to be cash equivalents.

At March 31, 2006 and December 31, 2005, approximately $9.0 million and $60.8
million, respectively, represent corporate bonds and treasury notes held by Bank
One, for which "AAA" rated letters of credit have been provided by the bank. The
remaining amounts of cash and cash equivalents are invested in money market
accounts with various banking and financial institutions.

6. STOCK WARRANTS SALES INCENTIVE

In 2000, the Company agreed to grant to a significant customer performance
warrants entitling the customer to purchase shares of Company stock. The
issuance of the performance warrants is dependent upon the customer meeting
performance milestones by purchasing specified minimum levels of services from
the Company over a specified period. The Company has estimated that such
performance milestones will not be met during the year. Accordingly, the Company
has not accounted for these performance warrants. If and when the Company
estimates that such performance milestones will be met, the sales incentive
associated with the performance warrants will be recorded as a reduction of
revenue.


                                       7

<PAGE>

7. COMPREHENSIVE INCOME

Total Comprehensive Income for the three months ended March 31, 2006 and 2005
was as follows:

<TABLE>
<CAPTION>
                                    THREE MONTHS ENDED
                                         MARCH 31,
                                    ------------------
                                       2006     2005
                                     -------   ------
                                       (in thousands)
<S>                                 <C>        <C>
Net income                           $12,055   $8,994
Other comprehensive income
   - Unrealized gain (loss)              528       30
   - Foreign currency translation
   adjustments                           (96)    (405)
                                     -------   ------
Total comprehensive income           $12,487   $8,619
                                     =======   ======
</TABLE>

8. EARNINGS PER SHARE

Basic and diluted earnings per share are computed in accordance with Statement
of Financial Accounting Standards ("SFAS") No, 128 "Earnings Per Share".

Basic earnings per share are calculated by dividing net income by the weighted
average number of shares outstanding during the applicable period.

The Company has stock options, which are considered to be potentially dilutive
to the basic earnings per share. Diluted earnings per share is calculated using
the treasury stock method for the dilutive effect of shares which have been
granted pursuant to the stock option plan, by dividing the net income by the
weighted average number of shares outstanding during the period adjusted for
these potentially dilutive options, except when the results would be
anti-dilutive. The potential tax benefits on exercise of stock options is
considered as additional proceeds while computing dilutive earnings per share
using the treasury stock method.

The following table summarizes the movement in the Capital Structure from
December 31, 2005

<TABLE>
<CAPTION>
PARTICULARS                                                        NO. OF SHARES
-----------                                                       --------------
                                                                  (IN THOUSANDS)
<S>                                                               <C>
Balance as on December 31, 2005                                       40,679
ADD:
Shares issued on exercise of stock options and restricted stock           33
                                                                      ------
Balance as on March 31, 2006                                          40,712
                                                                      ------
</TABLE>

The following table sets forth the computation of earnings per share.

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED MARCH 31,
                                     ----------------------------------------------
                                               2006                    2005
                                     -----------------------   --------------------
                                     Weighted                  Weighted
                                      Average   Earnings per    Average    Earnings
                                      Shares       Shares       Shares    per Share
                                     --------   ------------   --------   ---------
                                        (in thousands, except per share earnings)
<S>                                  <C>        <C>            <C>        <C>
Basic earnings per share              40,696       $ 0.30       40,366      $0.22
Potential dilutive effect of stock
   options outstanding                   252        (0.01)         160         --
                                      ------       ------       ------      -----
DILUTED EARNINGS PER SHARE            40,948       $ 0.29       40,526      $0.22
                                      ======       ======       ======      =====
</TABLE>


                                       8

<PAGE>

9. SEGMENT REPORTING

The Company is organized geographically and by business segment. For management
purposes, the Company is primarily organized on a worldwide basis into four
business segments:

     -    Applications Outsourcing

     -    e-Business

     -    TeamSourcing; and

     -    Business Process Outsourcing (BPO)

These segments are the basis on which the Company reports its primary segment
information to management. Management allocates all corporate expenses among the
segments. No balance sheet/identifiable assets data is presented since the
Company does not segregate its assets by segment. Financial data for each
segment for the three month periods ended March 31, 2006 and 2005 is as follows:

<TABLE>
<CAPTION>
                              THREE MONTHS ENDED
                                   MARCH 31,
                              ------------------
                                 2006      2005
                               -------   -------
                                 (in thousands)
<S>                           <C>        <C>
REVENUES:
   Applications Outsourcing    $46,310   $39,109
   e-Business                    9,168     6,868
   TeamSourcing                  4,776     3,694
   BPO                           3,242     1,061
                               -------   -------
                               $63,496   $50,732
                               -------   -------
GROSS PROFIT:
   Applications Outsourcing    $18,512   $17,087
   e-Business                    2,401     2,161
   TeamSourcing                  1,567     1,003
   BPO                           1,854       777
                               -------   -------
                                24,334    21,028
Selling, general and
   administrative expenses      10,598    11,165
                               -------   -------
Income from operations         $13,736   $ 9,863
                               -------   -------
</TABLE>


                                       9

<PAGE>

During the three months ended March 31, 2006 and 2005, American Express Corp.
contributed revenues in excess of 10% of total consolidated revenues. Revenue
from this customer was $11.81 million during the three months ended March 31,
2006, contributing approximately 18.6% of total consolidated revenues, as
compared to $7.44 million during the three months ended March 31, 2005,
contributing approximately 14.7% of total consolidated revenues. At March 31,
2006 and December 31, 2005 accounts receivable, from this customer were $1.8
million and $1.1 respectively.

10. GEOGRAPHIC INFORMATION

Customers of the Company are primarily located in the United States. Net
revenues and net income (loss) were attributed to each geographic location as
follows:

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                                              MARCH 31,
                                                         -------------------
                                                           2006       2005
                                                         --------   --------
                                                            (in thousands)
<S>                                                      <C>        <C>
NET REVENUES
   North America, primarily United States                $ 61,226   $ 45,287
   India                                                   32,156     26,161
   UK                                                       2,333      3,319
   Far East, primarily Singapore, Mauritius                   674        303
   Germany                                                    230        402
   Inter-company revenue elimination (primarily India)    (33,123)   (24,740)
                                                         --------   --------
      TOTAL REVENUE                                      $ 63,496   $ 50,732
                                                         --------   --------
NET INCOME/(LOSS)
   North America, primarily United States                $  2,714   $  2,122
   India                                                    9,242      6,350
   UK                                                         218        661
   Far East, primarily Singapore, Mauritius                   (33)        (3)
   Germany                                                    (86)      (136)
                                                         --------   --------
      INCOME AFTER INCOME TAXES                          $ 12,055   $  8,994
                                                         --------   --------
</TABLE>


                                       10

<PAGE>

11. INCOME TAXES

The following table accounts for the differences between the federal statutory
tax rate of 35% and the Company's overall effective tax rate :

<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED
                                                     MARCH 31,
                                                ------------------
                                                  2006       2005
                                                -------    -------
                                                   (in thousands)
<S>                                             <C>          <C>
Income before income taxes                      $14,625    $10,999
                                                -------    -------
Statutory provision                                35.0%      35.0%
State taxes, net of federal benefit                 1.0%       1.0%
Tax-free investment income                         (0.4%)     (0.8%)
Foreign effective tax rates different from US
   statutory rate                                 (18.0%)    (17.0%)
                                                -------    -------
EFFECTIVE INCOME TAX RATE                          17.6%      18.2%
                                                -------    -------
</TABLE>

The Company records provisions for income taxes based on enacted tax laws and
rates in the various taxing jurisdictions in which it operates. In determining
the tax provisions, the Company also provides for tax contingencies based on the
Company's assessment of future regulatory reviews of filed tax returns. Such
reserves, which are recorded in income taxes payable, are based on management's
estimates and accordingly are subject to revision based on additional
information. The provision no longer required for any particular tax year, is
credited to the current period's income tax expenses.

Syntel India has not provided for disputed Indian income tax liabilities
amounting to $2.53 million for the financial years 1995-96 to 2001-02. Syntel
India has obtained an opinion from one independent legal counsel (a former Chief
Justice of the Supreme Court of India) for the financial year 1998-99 and two
opinions from another independent legal counsel (also a former Chief Justice of
the Supreme Court of India) for the financial years 1995-96 to 1997-98 and
1999-2000 to 2001-02, which support Syntel India's position in this matter.

Syntel India had filed an appeal with the Commissioner of Income Tax (Appeals)
for the financial year 1998-99 and received a favorable decision. A similar
appeal filed by Syntel India with the Commissioner of Income Tax (Appeals) for
the financial year 1999-2000 was however dismissed in March 2004. Syntel India
has appealed this decision with the Income Tax Appellate Tribunal. Syntel India
has since also received orders for appeals filed with the Commissioner of Income
Tax (Appeals) against the demands raised in March 2004 by the Income Tax Officer
for similar matters relating to the financial years 1995-96 to 1997-98 and
2000-01 to 2001-02 and has received a favorable decision for 1995-96 and the
contention of Syntel India was partially upheld for the other years. Syntel
India has gone into further appeal with the Income Tax Appellate Tribunal for
the amounts not allowed by the Commissioner of Income Tax (Appeals). The Income
Tax Department has appealed the favorable decisions for 1995-96 and 1998-99 and
the partially favorable decisions for the other years with the Income Tax
Appellate Tribunal.

Syntel India has also not provided for other disputed Indian income tax
liabilities aggregating $4.45 million for the financial years 2001-02 and
2002-03, against which Syntel India has filed an appeal with the Commissioner of
Income Tax (Appeals). The contention of Syntel India was partially upheld by the
Commissioner of Income Tax (Appeals) for the financial year 2001-02. Syntel
India is in the process of filing further appeal with the Income Tax Appellate
Tribunal for the amounts not allowed by the Commissioner of Income Tax
(Appeals). The appeal for the financial year 2002-03 is not yet decided. Syntel
India has obtained opinions from independent legal counsels, which support
Syntel India's position in this matter.

Further, Syntel India has not provided for disputed income tax liabilities
aggregating to $0.10 million, for which Syntel India has filed or is in the
process of filing appeals or petitions.

All the above tax exposures involve complex issues and may need an extended
period to resolve the issues with the Indian income tax authorities. Management,
after consultation with legal counsel, believes that the resolution of the above
matters will not have a material adverse effect on the Company's financial
position.


                                       11

<PAGE>

UNDISTRIBUTED EARNINGS OF FOREIGN SUBSIDIARIES

The Company intends to use accumulated and future earnings of foreign
subsidiaries to expand operations outside the United States and accordingly
undistributed earnings of foreign subsidiaries are considered to be indefinitely
reinvested outside the United States and no provision for U. S. federal and
state income tax or applicable dividend distribution tax has been provided
thereon.

The American Jobs Creation Act of 2004 provided a special one-time favorable
effective federal tax rate for U.S.-based organizations. The Company repatriated
cash dividends of $61.0 million during 2005 out of the retained earnings of its
controlled foreign subsidiary, Syntel India, to the U.S. in accordance with the
Act. The Company recorded a tax charge of approximately $12.3 million, including
U.S. Federal and state taxes and the Indian dividend distribution tax under the
Indian Income Tax laws, during the fourth quarter of 2005. Proceeds from these
extraordinary dividends are required to be invested in the United States for
specific purposes permitted under Act pursuant to an approved written domestic
reinvestment plan. As of March 31, 2006, the Company has fully invested proceeds
from these cash dividends as required towards permitted investments under the
Act.

If the Company determines to repatriate all undistributed repatriable earnings
of controlled foreign corporations as of March 31, 2006 (without considering the
Jobs Act provisions), the Company would have accrued taxes of approximately
$38.3 million.


                                       12
<PAGE>

12. STOCK BASED COMPENSATION

SHARE BASED COMPENSATION:

The Company established a stock option plan in 1997 under which 3 million shares
of Common Stock were reserved for issuance. The dates on which granted options
are first exercisable are determined by the Compensation Committee of the Board
of Directors, but generally vest over a four-year period from the date of grant.
The term of any option may not exceed ten years from the date of grant.

For certain options granted during 1997, the exercise price was less than the
fair value of the Company's stock on the date of grant and, accordingly,
compensation expense is being recognized over the vesting period for such
difference. For the options granted thereafter, the Company grants the options
at the fair market value on the date of grant of the options.

For the options exercised the shares are generally issued out of new share
issues. In some instances the shares are issued out of Treasury Stock purchased
from the market.

On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123(R)") which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors including employee
stock options and employee stock purchases related to the Employee Stock
Purchase Plan ("employee stock purchases") based on estimated fair values. SFAS
123(R) supersedes the Company's previous accounting under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") for
periods beginning in fiscal 2006.

The Company adopted SFAS 123(R) using the modified prospective transition
method, which requires the application of the accounting standard as of January
1, 2006, the first day of the Company's fiscal year 2006. The Company's
financial statements as of and for the three months ended March 31, 2006 reflect
the impact of SFAS 123(R). In accordance with the modified prospective
transition method, the Company's financial statements for prior periods have not
been restated to reflect, and do not include, the impact of SFAS 123(R).
Share-based compensation expense recognized under SFAS 123(R) for the three
months ended March 31, 2006 was $0.45 million including charge for restricted
stock.

SFAS 123(R) requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company's Statement of Income.
Prior to the adoption of SFAS 123(R), the Company accounted for stock-based
awards to employees [and directors] using the intrinsic value method in
accordance with APB 25 as allowed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").

RESTRICTED STOCK:

On different dates during the quarter ended June 30, 2004 the Company issued
319,300 shares of incentive restricted stock to its non-employee directors and
some employees as well as to some employees of its subsidiaries. The shares were
granted to employees for their future services as a retention tool at a zero
exercise price, with the restrictions on transferability lapsing with regard to
10%, 20%, 30%, and 40% of the shares issued on or after the first, second, third
and fourth anniversary of the grant dates, respectively.

On different dates during the year ended December 31, 2005 and three months
ended March 31, 2006 the Company issued additional 54,806 and 732 shares
respectively, of incentive restricted stock to its non-employee directors and
some employees as well as to some employees of its subsidiaries. The shares were
granted to employees for their future services as a retention tool at a zero
exercise price, with the restrictions on transferability lapsing with regard to
25% of the shares issued on or after the first, second, third and fourth
anniversary of the grant dates.

Based upon the market value on the grant dates, the Company recorded $5.84
million during the three months ended June 30, 2004, $0.89 million during the
year ended December 31, 2005 and $0.01 million during the three months ended
March 31, 2006 of unearned compensation included as a separate component of
shareholders' equity to be


                                       13

<PAGE>

expensed over the four - year service period on a straight line basis. During
the three months ended March 31, 2006 and 2005, the Company reversed $0.14
million and $0.54 million, respectively, of unearned compensation towards
forfeiture of restricted stock on account of termination of employees and
expensed $0.22 million and $0.25 million, respectively, as compensation cost on
account of these stock grants.

The recipients are also eligible for dividends declared on their restricted
stock. The dividends paid on shares of unvested restricted stock are charged to
compensation cost. For the three months ended March 31, 2006 and 2005, the
Company recorded $0.01 million and $0.43 million, respectively, as compensation
cost for dividends paid on shares of unvested restricted stock.

For the restricted stock issued during the year ended December 31, 2005 and
three months ended March 31, 2006, the dividend will be accrued and paid subject
to the same restriction as the restriction on transferability.

IMPACT OF THE ADOPTION OF FAS 123(R)

We adopted FAS 123(R) using the modified prospective transition method beginning
January 1, 2006. Accordingly, during the three-month period ended March 31,
2006, we recorded stock-based compensation expense for awards granted prior to,
but not yet vested, as of January 1, 2006, as if the fair value method required
for pro forma disclosure under FAS 123 were in effect for expense recognition
purposes, adjusted for estimated forfeitures. As FAS 123(R) requires that
stock-based compensation expense be based on awards that are ultimately expected
to vest, stock-based compensation for the three-month period ended March 31,
2006 has been reduced for estimated forfeitures. When estimating forfeitures, we
consider trends of actual option forfeitures. The impact on our results of
operations of recording stock-based compensation (including impact of restricted
stock) for the three month period ended March 31, 2006 was as follows (in
thousands):

<TABLE>
<S>                                            <C>
Cost of revenues                               $232
Selling, general and administrative expenses    213
                                               ----
                                               $445
                                               ----
</TABLE>

Cash received from option exercises under all share-based payment arrangements
for the three-month periods ended March 31, 2005 and 2006, was $ 1.61 million
and $ 0.25 million, respectively. New shares were issued for all options
exercised during the three months ended March 31, 2006. The total income tax
benefit recognized in the income statement for stock-based compensation costs
was $0 and $ 0.01 million for the three-month periods ended March 31, 2005 and
2006, respectively. Prior to the adoption of FAS 123(R), the intrinsic value of
restricted stock were recorded as unearned stock-based compensation as of
December 31, 2005. Upon the adoption of FAS 123(R) in January 2006, the unearned
stock-based compensation balance of approximately $3.17 million was reclassified
to additional-paid-in-capital.

As of March 31, 2006, the estimated compensation cost of non-vested options
(excluding restricted stock) is $ 0.85 million to be vested mainly over the next
two years.

VALUATION ASSUMPTIONS

We calculated the fair value of each option award on the date of grant using the
Black-Scholes option pricing model. The following assumptions were used for each
respective period:

<TABLE>
<CAPTION>
                             THREE MONTHS ENDED
                                  MARCH 31,
                             ------------------
                                2006    2005
                               -----   -----
<S>                          <C>       <C>
Assumptions
   Risk free interest rate      4.78%   4.12%
   Expected life                5.00    5.00
   Expected volatility         67.56%  71.07%
   Expected dividend yield      1.27%   9.83%
</TABLE>


                                       14

<PAGE>
Our computation of expected volatility for the first quarter of 2006 is based on
a combination of historical volatility from traded options on our stock. Prior
to 2006 also, our computation of expected volatility was based on historical
volatility. Our computation of expected life in 2006, was determined based on
historical experience of similar awards, giving consideration to the contractual
terms of the stock-based awards, vesting schedules and expectations of future
employee behavior. The interest rate for periods within the contractual life of
the award is based on the U.S. Treasury yield curve in effect at the time of
grant.

SHARE-BASED PAYMENT AWARD ACTIVITY

The following table summarizes activity under our equity incentive plans for the
three months ended March 31, 2006
(in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                   WEIGHTED AVERAGE
                                                     WEIGHTED          REMAINING
                                                      AVERAGE      CONTRACTUAL TERM      AGGREGATE
                                         SHARES   EXERCISE PRICE      (IN YEARS)      INTRINSIC VALUE
                                        -------   --------------   ----------------   ---------------
<S>                                     <C>       <C>              <C>                <C>
Outstanding at January 1, 2006          438,251       $12.28
   Granted                                    0            0
   Exercised                             32,116         7.90
   Forfeited                             29,900        23.94
   Expired / Cancelled                   11,353         6.40
                                        -------       ------             ----             ----------
OUTSTANDING AT MARCH 31, 2006           364,882        11.89             5.40            $ 2,344,655
                                        -------       ------             ----             ----------
OPTIONS EXERCISABLE AT MARCH 31, 2006   272,982        10.24             4.90            $ 2,204,345
                                        -------       ------             ----             ----------
</TABLE>

The weighted average grant-date fair value of options granted for three-month
period ended March 31, 2005 and 2006 was $ 2.51 and $ 5.32, respectively. The
agregate intrinsic value of options exercised as of March 31, 2006 was $ 7.12
and fair value of shares vested and outstanding as on March 31, 2006 $ 5.68.

PRO FORMA INFORMATION FOR PERIODS PRIOR TO THE ADOPTION OF FAS 123(R)

Prior to the adoption of FAS No. 123(R), we provided the disclosures required
under FAS No. 123, as amended by FAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosures." Employee stock-based compensation
expense recognized under FAS 123(R) was not reflected in our results of
operations for the three-month period ended March 31, 2005 for employee stock
option awards as all options were granted with an exercise price equal to the
market value of the underlying common stock on the date of grant. Our ESPP was
deemed non-compensatory under the provisions of APB No. 25. Forfeitures of
awards were recognized as they occurred. Previously reported amounts have not
been restated.

The pro forma information for the three months ended March 31, 2005 was as
follows (in thousands, except per share amounts):


                                       15

<PAGE>

<TABLE>
<CAPTION>
                                                              THREE MONTHS
                                                               ENDED MARCH
                                                                31, 2005
                                                              ------------
<S>                                                           <C>
NET INCOME
   As reported                                                  $ 8,994
   Stock based Compensation expense recognized in statement
      of income, net of tax                                     $   598
   Stock based compensation expense determined under the
      fair value method, net of tax                               ($895)
                                                                -------
PRO FORMA NET INCOME                                            $ 8,697
                                                                -------

EARNINGS PER SHARE, PRO FORMA
   Basic earnings per share                                     $  0.22
   Diluted earnings per share                                   $  0.21

EARNINGS PER SHARE AS REPORTED
   Basic earnings per share                                     $  0.22
   Diluted earnings per share                                   $  0.22

WEIGHTED AVERAGE SHARES OUTSTANDING
   Basic                                                         40,366
   Diluted                                                       40,526
</TABLE>

13. PROVISION FOR UNUTILIZED LEAVE

During the year ended December 31, 2005 Syntel India had changed its leave
policy, resulting in a reduction of the maximum permissible accumulation of
unutilized leave from 150 days to 60 days. The balance exceeding maximum
permissible accumulation is compulsorily encashed at basic salary. Accordingly
an amount of $0.51 million was paid at basic salary and $1.14 million was
reversed being the difference between the basic salary and gross compensation
rates.

The gross charge for unutilized earned leave was $0.42 million and $0.06 million
for the three months ended March 31, 2006 and March 31, 2005 respectively.

The amounts accrued for unutilized earned leave are $3.99 million and $3.70
million as of March 31, 2006 and December 31, 2005, respectively, and are
included within `Accrued payroll and related costs'.

14. RECLASSIFICATION

Certain prior period amounts have been reclassified to conform with the current
period presentation.


                                       16
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

SYNTEL INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS

REVENUES. The Company's revenues consist of fees derived from its Applications
Outsourcing, e-Business, TeamSourcing and Business Process Outsourcing business
segments. Net revenues in the three months ended March 31, 2006 increased to
$63.5 million from $50.7 million in the three months ended March 31, 2005,
representing a 25.2% increase. Revenues have increased primarily consequent to
our increased workforce. Information technology offshoring is a growing trend
with increasing numbers of multi-national corporations aggressively outsourcing
their applications development or business processes to vendors with an offshore
presence. Syntel has benefited from this trend. Also the Company's Client
Partner Program has enabled better relationships with key customers leading to
continued growth in business. Worldwide billable headcount, including personnel
employed by Syntel India, Syntel Singapore, Syntel U.K., and Syntel Germany as
of March 31, 2006 increased by 36% to 4,429 employees as compared to 3,267
employees as of March 31, 2005. However, the growth in revenues was not
commensurate with the growth in the billable headcount. This is primarily
because a significant growth in the billable headcount was in India, where our
revenues per offshore billable resource are generally lower as compared to an
on-site based resource. As of March 31, 2006, the Company had approximately
67.5% of its billable workforce in India as compared to 60.3% as of March 31,
2005. The Company's top five customers accounted for 50.2% of the total revenues
in the three months ended March 31, 2006, up from 41.5% of its total revenues in
the three months ended March 31, 2005. Moreover, the Company's top 10 customers
accounted for 69.6% of the total revenues in the three months ended March 31,
2006 as compared to 62% in the three months ended March 31, 2005.

APPLICATIONS OUTSOURCING REVENUES. Applications Outsourcing revenues increased
to $46.3 million for the three months ended March 31, 2006, or 72.9% of total
revenues, from $39.1 million, or 77.1% of total revenues for the three months
ended March 31, 2005. The $7.2 million increase was attributable primarily to
revenues from new engagements contributing $23.4 million largely offset by $16.2
million in lost revenues as a result of project completion and net reduction in
revenues from existing projects.

APPLICATIONS OUTSOURCING COST OF REVENUES. Cost of revenues consists of costs
directly associated with billable consultants in the US and offshore, including
salaries, payroll taxes, benefits, relocation costs, immigration costs, finder's
fees, trainee compensation and travel. Applications Outsourcing costs of
revenues increased to 60.0% of total Applications Outsourcing revenues for the
three months ended March 31, 2006, from 56.3% for the three months ended March
31, 2005. The 3.7 percentage point increase in cost of revenues, as a percent of
revenues for the three months ended March 31, 2006 was attributable primarily,
due to onsite wage increase, cost related to FAS 123(R) and increased offshore
headcount.

E-BUSINESS REVENUES. e-Business revenues increased to $9.2 million for the three
months ended March 31, 2006, or 14.4% of total revenues, from $6.9 million, or
13.5% of revenues for the three months ended March 31, 2005. The $2.3 million
increase was attributable primarily to revenues from new engagements and net
increase in revenues from existing projects contributing $3.8 million largely
offset by $1.5 million in lost revenues as a result of project completion.

E-BUSINESS COST OF REVENUES. e-Business cost of revenues consists of costs
directly associated with billable consultants in the US and offshore, including
salaries, payroll taxes, benefits, relocation costs, immigration costs, finder's
fees, trainee compensation, and travel. e-Business cost of revenues increased to
73.8% of total e-Business revenues for the three months ended March 31, 2006,
from 68.5% for the three months ended March 31, 2005. The 5.3 percentage point
increase in cost of revenues as a percent of revenues for the three months ended
March 31, 2006 is principally attributable to onsite wage increase, cost related
to FAS 123(R) and lower utilization of the resources caused by increased hiring
and training at offshore locations.

TEAMSOURCING REVENUES. TeamSourcing revenues increased to $4.8 million for the
three months ended March 31, 2006, or 7.5% of total revenues, from $3.7 million,
or 7.3% of total revenues for the three months ended March 31, 2005. The $1.1
million increase was attributable primarily to revenues from new engagements and
revenue from the SkillBay web portal which helps clients of Syntel with their
supplemental staffing requirements contributing $2.6 million largely offset by
$1.5 million in lost revenues as a result of project completion and net
reduction in revenues from existing projects.


                                       17

<PAGE>

TEAMSOURCING COST OF REVENUES. TeamSourcing cost of revenues consists of costs
directly associated with billable consultants in the US, including salaries,
payroll taxes, benefits, relocation costs, immigration costs, finder's fees,
trainee compensation, and travel. TeamSourcing cost of revenues decreased to
67.2% of TeamSourcing revenues for the three months ended March 31, 2006, from
72.8% for the three months ended March 31, 2005. This decrease in cost of
revenues, as a percent of total TeamSourcing revenues was attributable primarily
to the better utilization of TeamSourcing resources and by net revenues from
Skillbay web portal placements.

BPO REVENUES. This segment started contributing revenues during the first
quarter of 2004. Revenues from this segment were $3.2 million or 5.1% of total
revenues for the three months ended March 31, 2006 as against $1.1 million or
2.1% for the three months ended March 31, 2005. The $2.1 million increase in the
three months period ended March 31, 2006 were primarily due to the increased
billable headcount.

BPO COST OF REVENUES. BPO cost of revenues consists of costs directly associated
with billable consultants, including salaries, payroll taxes, benefits, finder's
fees, trainee compensation, and travel. Cost of revenues for the three months
ended March 31, 2006 increased to 42.8% of BPO revenues from 26.8% for the three
months ended March 31, 2005. The 16.0% increase in cost of revenues, as a
percent of total BPO revenues was attributable primarily to increased billable
headcount.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses consist primarily of salaries, payroll taxes and
benefits for sales, solutions, finance, administrative, and corporate staff;
travel; telecommunications; business promotions; and marketing and various
facility costs for the Company's global development centers and other offices.
Selling, general, and administrative costs for the three months ended March 31,
2006 were $10.6 million or 16.7% of total revenues, compared to $11.2 million or
22.0% of total revenues for the three months ended March 31, 2005.

Selling, general and administrative costs for the three months ended March 31,
2005 include an one time special performance based incentive program for sales
teams of $0.4 million and compensation expense related to a special dividend of
$1.50 per share on restricted stock held by employees of $0.1 million. Combined,
these two items account for 1.0 of the 5.3 percentage point decrease in selling,
general, and administrative expenses as a percentage of revenue.

The remaining 4.3 percentage point decreases is primarily due to increases in
revenue and decreases in certain costs in the three months ended March 31, 2006
as against the three months ended March 31, 2005. The increase in revenue has
resulted in an approximately 4.2 percentage point decrease. Cost decreases
include decreases in compensation cost of $1.1 million, legal expenses of $0.1
million, consultancy fees of $0.3 million and other fees of $0.2 million
partially offset by an increase in depreciation of $0.2 million, rent of $0.3
million towards the BPO offices at the Hiranandani, Mumbai and the Pune
facilities in India, an increase in travel expenses of $0.1 million,
telecommunication expenses of $0.2 million and office expenses of $0.3 million,
which has resulted in an approximately 0.1 percentage point decrease.

INCOME TAXES

The Company records provisions for income taxes based on enacted tax laws and
rates in the various taxing jurisdictions in which it operates. In determining
the tax provisions, the Company also provides for tax contingencies based on the
Company's assessment of future regulatory reviews of filed tax returns. Such
reserves, which are recorded in income taxes payable, are based on management's
estimates and accordingly are subject to revision based on additional
information.

The provision for income tax contingencies no longer required for any particular
tax year is credited to the current period's income tax expenses. During the
three months ended March 31, 2006 and March 31, 2005, the effective income tax
rate was 17.6% and 18.2% respectively.


                                       18

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company generally has financed its working capital needs through operations.
The Company's cash and cash equivalents consist primarily of certificates of
deposit, corporate bonds and treasury notes. These amounts are held by various
banking institutions including US-based and India-based banks.

Net cash used in operating activities was $2.2 million for the three months
ended March 31, 2006. The net cash provided by operating activities was $6.7
million for the three months ended March 31, 2005. The number of days sales
outstanding in net accounts receivable was approximately 62 days and 64 days as
of March 31, 2006 and March 31, 2005, respectively. The decrease in the number
of day's sales outstanding in net accounts receivable was due to relatively
higher collections during the three months ended March 31, 2006.

Net cash used in investing activities was $9.1 million for the three months
ended March 31, 2006, consisting principally of $14.9 million for the purchase
of short term investments and $3.2 million of capital expenditures consisting
principally of capital work in progress, including capital advances towards
construction of a Global Development Center at Pune, India, PCs and
communications equipment, partially offset by the sale of short term investments
of $9.0 million. Net cash provided by investing activities was $20.2 million
for the three months ended March 31, 2005, consisting principally of $29.9
million for the sale of short term investments partially offset by $2.4 million
for capital expenditures and the purchase of short term investments of $7.3
million.

Net cash used in financing activities was $2.2 million for the three months
ended March 31, 2006, consisting principally of $2.4 million in dividends paid
out partially offset by $0.2 million of proceeds from the issuance of shares
under the Company's employee stock option plan and employee stock purchase plan.
Net cash used in financing activities was $62.1 million for the three months
ended March 31, 2005, consisting principally of $63.5 million in dividends paid
out and $0.7 million in common stock repurchases, partially offset by $2.1
million of proceeds from the issuance of shares under the Company's employee
stock option plan and employee stock purchase plan.

The Company has a line of credit with JP Morgan Chase Bank NA, which provides
for borrowings up to $15.0 million. The line of credit has been renewed and
amended and now expires on August 31, 2006. The line of credit has a sub-limit
of $5.0 million for letters of credit, which bear a fee of 1% per annum of the
face value of each standby letter of credit issued. Borrowings under the line of
credit bear interest at (i) a formula approximating the Eurodollar rate plus the
applicable margin of 1.25%, (ii) the bank's prime rate minus 1.0% or (iii)
negotiated rate plus 1.25%. There were no outstanding borrowings at March 31,
2006 and 2005.

The Company believes that the combination of present cash balances and future
operating cash flows will be sufficient to meet the Company's currently
anticipated cash requirements for at least the next 12 months.

CRITICAL ACCOUNTING POLICIES

We believe the following critical accounting policy, among others, affects the
more significant judgments and estimates used in the preparation of our
consolidated financial statements. The Company has discussed this critical
accounting policy and the estimates with the Audit Committee of the Board of
Directors.

REVENUE RECOGNITION. Revenue recognition is the most significant accounting
policy for the Company. The Company recognizes revenue from time and material
contracts as services are performed. During the three months ended March 31,
2006 and 2005, revenues from time and material contracts constituted 56% and 45%
of total revenues, respectively. Revenue from fixed-price, application
management, maintenance and support engagements is recognized as earned, which
generally results in straight-line revenue recognition as services are performed
continuously over the term of the engagement. During the three months ended
March 31, 2006 and 2005, revenues from fixed price application management and
support engagements constituted 25% and 34% of total revenues, respectively.

Revenue on fixed price development projects is measured using the proportional
performance method of accounting. Performance is generally measured based upon
the efforts incurred to date in relation to the total estimated efforts required
through the completion of the contract. The Company monitors estimates of total
contract revenues and cost on a routine basis throughout the delivery period.
The cumulative impact of any change in estimates of the contract


                                       19

<PAGE>

revenues or costs is reflected in the period in which the changes become known.
In the event that a loss is anticipated on a particular contract, provision is
made for the estimated loss. The Company issues invoices related to fixed price
contracts based on either the achievement of milestones during a project or
other contractual terms. Differences between the timing of billings and the
recognition of revenue based upon the proportional performance method of
accounting are recorded as revenue earned in excess of billings or deferred
revenue in the accompanying financial statements. During the three months ended
March 31, 2006 and 2005, revenues from fixed price development contracts
constituted 19% and 21% of total revenues, respectively.

SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses for the reporting period. By their
nature, these estimates and judgments are subject to an inherent degree of
uncertainty. The Company bases its estimates and judgments on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results could differ from those estimates.

REVENUE RECOGNITION. The use of the proportional performance method of
accounting requires that the Company makes estimates about its future efforts
and costs relative to its fixed price contracts. While the Company has
procedures in place to monitor the estimates throughout the performance period,
such estimates are subject to change as each contract progresses. The cumulative
impact of any such changes is reflected in the period in which the changes
become known.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company records an allowance for doubtful
accounts based on a specific review of aged receivables. The provision for the
allowance for doubtful accounts is recorded in selling, general and
administrative expenses. These estimates are based on our assessment of the
probable collection from specific customer accounts, the aging of the accounts
receivable, analysis of credit data, bad debt write-offs, and other known
factors.

INCOME TAXES--ESTIMATES OF EFFECTIVE TAX RATES AND RESERVES FOR TAX
CONTINGENCIES. The Company records provisions for income taxes based on enacted
tax laws and rates in the various taxing jurisdictions in which it operates. In
determining the tax provisions, the Company also provides for tax contingencies
based on the Company's assessment of future regulatory reviews of filed tax
returns. Such reserves, which are recorded in income taxes payable, are based on
management's estimates and accordingly are subject to revision based on
additional information. The provision no longer required for any particular tax
year is credited to the current period's income tax expense.

During the three months ended March 31, 2006 and March 31, 2005, the effective
income tax rate was 17.6% and 18.2%, respectively.

ACCRUALS FOR LEGAL EXPENSES AND EXPOSURES. The Company estimates the costs
associated with known legal exposures and their related legal expenses and
accrues reserves for either the probable liability, if that amount can be
reasonably estimated, or otherwise the lower end of an estimated range of
potential liability.

FORWARD LOOKING STATEMENTS / RISK FACTORS

Certain information and statements contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations and other sections of
this report, including the allowance for doubtful accounts, contingencies and
litigation, potential tax liabilities, interest rate or foreign currency risks,
and projections regarding our liquidity and capital resources, could be
construed as forward looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Forward-looking statements include statements
containing words such as "could", "expects", "may", "anticipates", "believes",
"estimates", "plans", and similar expressions. In addition, the Company or
persons acting on its behalf may, from time to time, publish other forward
looking statements. Such forward looking statements are based on management's
estimates, assumptions and projections and are subject to risks and
uncertainties that could cause actual results to differ materially from those
discussed in the forward looking statements. Some of the factors that could
cause future results to materially differ from the recent results or those
projected in the forward looking statements include the


                                       20

<PAGE>

following, which factors are more fully discussed in the Company's most recently
filed Annual Report on Form 10-K and other SEC filings, in each case under the
section entitled "Risk Factors":

     -    Recruitment and Retention of IT Professionals

     -    Government Regulation of Immigration

     -    Variability of Quarterly Operating Results

     -    Customer Concentration; Risk of Termination

     -    Exposure to Regulatory and General Economic Conditions in India

     -    Intense Competition

     -    Ability to Manage Growth

     -    Fixed-Price Engagements

     -    Potential Liability to Customers

     -    Dependence on Key Personnel

     -    Risks Related to Possible Acquisitions

     -    Limited Intellectual Property Protection

     -    Potential Anti-Outsourcing Legislation

     -    Adverse Economic Conditions

     -    Failure to Successfully Develop and Market New Products and Services

     -    Benchmarking Provisions

     -    Corporate Governance Issues

     -    Telecom/Infrastructure Issues

     -    Confidentiality Issues

     -    New Facilities

     -    Stock Option Accounting

     -    Terrorist Activity, War or Natural Disasters

     -    Instability and Currency Fluctuations

The Company does not intend to update the forward looking statements or risk
factors to reflect future events or circumstances.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS No. 154"), which replaces APB Opinion No. 120, "Accounting
Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements." SFAS No. 154 changes the requirements for accounting and reporting
a change in accounting principle, and applies to all voluntary changes in
accounting principles, as well as changes required by an accounting
pronouncement in the unusual instance it does not include specific transition
provisions. Specifically, SFAS No. 154 requires retrospective application to
prior periods' financial statements, unless it is impracticable to determine the
period-specific effects or the cumulative effect of the change. When it is
impracticable to determine the effects of the change, the new accounting
principle must be applied to the balances of assets and liabilities as of the
beginning of the earliest period for which retrospective application is
practicable and a corresponding adjustment must be made to the opening balance
of retained earnings for that period rather than being reported in an income
statement. When it is impracticable to determine the cumulative effect of the
change, the new principle must be applied as if it were adopted prospectively
from the earliest date practicable. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. SFAS No. 154 does not change the transition provisions of any existing
pronouncements. The Company has evaluated the impact of SFAS No. 154 and does
not expect the adoption of this statement to have a significant impact on its
consolidated statement of income or financial condition. The Company will apply
SFAS No. 154 in future periods, when applicable.


                                       21

<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is exposed to the impact of interest rate changes and foreign
currency fluctuations.

INTEREST RATE RISK

The Company considers investments purchased with an original or remaining
maturity of less than three months at date of purchase to be cash equivalents.
The following table summarizes Company's cash and cash equivalents and short
term investments:

<TABLE>
<CAPTION>
                            MARCH 31,   DECEMBER 31,
ASSETS                         2006         2005
------                      ---------   ------------
                                 (in thousands)
<S>                         <C>         <C>
Cash and cash equivalents    $ 85,880     $ 99,390
Short term Investments         27,303       21,083
                             --------     --------
TOTAL                        $113,183     $120,473
                             --------     --------
</TABLE>

The Company's exposure to market rate risk for changes in interest rates relates
primarily to its investment portfolio. The Company does not use derivative
financial instruments in its investment portfolio. The Company's investments are
in high-quality Indian Mutual Funds and, by policy, limit the amount of credit
exposure to any one issuer. At any time, changes in interest rates could have an
impact on interest earnings for its investment portfolio. The Company protects
and preserves its invested funds by limiting default, market and reinvestment
risk. Investments in interest earning instruments carry a degree of interest
rate risk. Floating rate securities may produce less income than expected if
there is a decline in interest rates. Due in part to these factors, the
Company's future investment income may fall short of expectations, or the
Company may suffer a loss in principal if the Company is forced to sell
securities, which have declined in market value due to changes in interest rates
as stated above.

FOREIGN CURRENCY RISK

The Company's sales are primarily sourced in the United States and its
subsidiary in the United Kingdom and are mostly denominated in U.S. dollars or
UK pounds respectively. Its foreign subsidiaries incur most of their expenses in
the local currency. Accordingly, all foreign subsidiaries use the local currency
as their functional currency. The Company's business is subject to risks typical
of an international business, including, but not limited to differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
the Company's future results could be materially adversely impacted by changes
in these or other factors. The risk is partially mitigated as the Company has
sufficient resources in the respective local currencies to meet immediate
requirements. The Company is also exposed to foreign exchange rate fluctuations
as the financial results of foreign subsidiaries are translated into U.S.
dollars in consolidation. As exchange rates vary, these results, when
translated, may vary from expectations.

During the three months ended March 31, 2006, the Indian rupee has appreciated,
against U.S. dollar, by 2.2% as compared to the year ended December 31, 2005.
The impact of this rupee appreciation adversely impacted the Company's gross
margin by 41 basis points, operating income by 53 basis points and net income by
53 basis points, each as a percentage of revenue. The Indian rupee denominated
cost of revenues and selling, general and administrative expense was 29.4% and
32.7%, respectively, which did not have a material impact on the operating
results of the company.

Although the Company cannot predict future movement in interest rates or
fluctuations in foreign currency rates, the Company does not currently
anticipate that interest rate risk or foreign currency risk will have a
significant impact.


                                       22

<PAGE>

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on their evaluation of
the Company's disclosure controls and procedures as of March 31, 2006 as well as
mirror certifications from senior management, the Company's Chairman, President
and Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 (the Exchange Act) is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms and are operating in
an effective manner. There have been no changes in the Company's internal
controls over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) during the last quarter that materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS. Disclosure Controls are procedures
designed to ensure that information required to be disclosed in our reports
filed under the Exchange Act, such as this Report, is recorded, processed,
summarized and reported within the time periods specified in the U.S. Securities
and Exchange Commission's (the SEC) rules and forms. Disclosure Controls are
also designed to ensure that such information is accumulated and communicated to
our management, including the CEO and CFO, as appropriate to allow timely
decisions regarding required disclosure. Internal Controls are procedures
designed to provide reasonable assurance that (1) our transactions are properly
authorized; (2) our assets are safeguarded against unauthorized or improper use;
and (3) our transactions are properly recorded and reported, all to permit the
preparation of our financial statements in conformity with generally accepted
accounting principles.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. The Company's management,
including the CEO and CFO, does not expect that our Disclosure Controls or our
Internal Controls will prevent all error and all fraud. A control system, no
matter how well designed and operated, can provide only reasonable, not
absolute, assurance that the control system's objectives will be met. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the company have been detected. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. The design of
any system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with its policies or procedures.

SCOPE OF THE CONTROLS EVALUATION. In the course of the Controls Evaluation, we
sought to identify data errors, control problems or acts of fraud and confirm
that appropriate corrective actions, including process improvements, were being
undertaken. Our Internal Controls are also evaluated on an ongoing basis by our
Internal Audit Department and by other personnel in our organization. The
overall goals of these various evaluation activities are to monitor our
Disclosure Controls and our Internal Controls, and to modify them as necessary;
our intent is to maintain the Disclosure Controls and the Internal Controls as
dynamic systems that change as conditions warrant.

Among other matters, we sought in our evaluation to determine whether there were
any "significant deficiencies" or "material weaknesses" in the Company's
Internal Controls, and whether the company had identified any acts of fraud
involving personnel with a significant role in the Company's Internal Controls.
This information was important both for the Controls Evaluation generally, and
because the Rule 13a-14 Certifications of the CEO and CFO require that the CEO
and CFO disclose that information to our Board's Audit Committee and our
independent auditors. We also sought to deal with other controls matters in the
Controls Evaluation, and in each case if a problem was identified, we considered
what revision, improvement and/or correction to make in accordance with our
ongoing procedures.

CONCLUSIONS. Based upon the Controls Evaluation, our CEO and CFO have concluded
that as of March 31, 2006 our disclosure controls and procedures are effective
to ensure that material information relating to Syntel and its consolidated
subsidiaries is made known to management, including the CEO and CFO,
particularly during the period when our periodic reports are being prepared, and
that our Internal Controls are effective to provide reasonable assurance that
our financial statements are fairly presented in conformity with generally
accepted accounting principles in the United States of America.


                                       23

<PAGE>

                                     PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

While the Company is a party to ordinary routine litigation incidental to its
business, the Company is not a party to any material pending legal proceedings.

ITEM 1A. RISK FACTORS.

There have been no material changes in the Company's risk factors as disclosed
in the Company's annual report in Form 10-K for the year ended December 31,
2005.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibits

<TABLE>
<CAPTION>
Exhibit No.   Description
-----------   -----------
<S>           <C>
31.1          Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2          Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32            Section 1350 Certification of Chief Executive Officer and Chief
              Financial Officer.
</TABLE>


                                       24

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        SYNTEL, INC.


Date May 9, 2006                        /s/ Bharat Desai
                                        ----------------------------------------
                                        Bharat Desai, Chairman, President and
                                        Chief Executive Officer


Date May 9, 2006                        /s/ Revathy Ashok
                                        ---------------------------------------
                                        Revathy Ashok, Chief Financial Officer


                                       25

<PAGE>

EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit No.   Description
-----------   -----------
<S>           <C>
31.1          Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2          Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32            Section 1350 Certification of Chief Executive Officer and Chief
              Financial Officer.
</TABLE>


                                       26