Infosys Q3 disappoints, economic worries hit outlook

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 No. 2 software exporter fell more than 4 percent 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 percent in the year ending March, below analysts expectations of 27 to 28 percent.

The revenue growth forecast was, however, higher than 24 to 25 percent 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 percent to fight poaching by global rivals - raising hopes of a sharp pickup in outsourcing demand.

Global spending on technology is likely to rise 5 percent 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 percent. Shares in tech rival Tata Consultancy were up more than 1 percent.

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 17.8 billion rupees ($396.4 million) from 15.6 billion a year ago. This compares with a Reuters poll of 18.2 billion rupees.

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 percent from 65.8 percent.

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

Infosys said net profit the fiscal third-quarter ended December rose to 17.8 billion rupees ($396.4 million) from 15.6 billion a year ago. This compares with a Reuters poll of 18.2 billion rupees.

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 percent from 65.8 percent.

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