Infosys Technologies’ weaker-than-expected results sparked concerns over growth rates of India’s showpiece outsourcing sector as the company flagged a sluggish global economic recovery and currency volatility.

Shares in India’s second largest software exporter fell more than 4 per cent to their lowest in over three weeks after its sales growth forecast for the year to March also failed to meet market estimates, a rare miss for a company known for its conservative outlook.

“The challenges to the sector are primarily rupee volatility, which doesn’t seem to be going down in a hurry,” said Arun Kejriwal, strategist at research firm KRIS. “My concern increases because oil prices are still rising rapidly, putting pressure on economy and rupee.”

Infosys, which kicked off results for the country’s $60 billion IT services industry, cited the economy as a key risk.

“I am very concerned and deeply worried (by the currency fluctuation) because world over, all the economies are going through troubled times,” Infosys Chief Financial Officer V Balakrishnan told reporters.

“I think the markets are going to be overly concerned about all the sovereign risks that is going to create extreme volatility in currency,” he said.

Infosys, which counts Goldman Sachs, BT and BP among its clients, expects its dollar revenue to rise 25.7 to 26.1 per cent in the year ending March, below analysts expectations of 27 to 28 per cent.

The revenue growth forecast was, however, higher than 24 to 25 per cent rise forecast by the company in October.

Analysts said the possibility of a sharper appreciation in the rupee, rising wages and intensifying competition from global firms such as IBM, Accenture and Hewlett-Packard were also risks for export-driven Indian outsourcers.

Infosys and its rivals Tata Consultancy and Wipro have been on a hiring spree in recent quarters and have given pay hikes of up to 20 per cent to fight poaching by global rivals – raising hopes of a sharp pickup in outsourcing demand.

Global spending on technology is likely to rise 5 per cent to $3.6 trillion in 2011, research firm Gartner said in a recent report, more than its previous estimate as the dollar’s weakness helped push IT spending beyond its forecast for 2010.

Infosys shares, valued at about $42 billion, fell in a broader Mumbai market down 0.5 per cent. Shares in tech rival Tata Consultancy were up more than 1 per cent.

WEAKER RECOVERY

“The weaker economic recovery in developed markets coupled with high unemployment and risk of sovereign default could impact industry growth,” Infosys Chief Executive S. Gopalakrishnan said in a statement.

Infosys said net profit the fiscal third-quarter ended December rose to Rs 1,780 crore ($396.4 million) from 15.6 billion a year ago. This compares with a Reuters poll of Rs 1,820 crore.

The company added 40 new clients in the quarter ended December, its strongest pace of quarterly customer addition in three quarters. But revenue contribution from the United States, its biggest market, fell to 64.7 per cent from 65.8 per cent.

Infosys shares, climbed 13 per cent in October-December, lagging a near 15 per cent rise in the sector index and outpacing a 2 per cent gain in the main index.

($1= Rs 44.9)

source: Business Standard

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