Bangalore/Mumbai: Infosys Technologies sparked concerns about the outlook for India's showpiece outsourcing sector after it missed estimates for profit and future sales growth and warned of sluggish global economic growth.

Shares in India's No 2 software exporter, which boasts fatter profit margins than its rivals, fell 4.2 per cent and were set for their biggest fall in nearly one and a half years.

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 keep staff, raising hopes of a sharp pick-up in outsourcing demand.

"We are particularly disappointed by Infosys' revenue growth forecast and if Tata Consultancy manages to post better results than Infosys, then people will switch over from Infosys because valuations for others look relatively attractive," Taina Erajuuri, Helsinki-based portfolio manager at FIM India, said.

FIM India owns shares in Infosys and Tata Consultancy in its portfolio.

Sprawling campus

Infosys, whose sprawling Indian campuses house pizza and Subway outlets and golf courses, was the first to kick off results for the country's $60 billion (Dh220 billion) IT services sector.

"The striking negative is that they failed to meet guidance, which is unusual in their case," said Ambareesh Baliga, vice-president of Karvy Stock Broking in Mumbai.

"The expectations from other IT companies will now taper down."

Infosys' net profit in the fiscal third-quarter ended December rose to Rs17.8 billion ($396 million, Dh1.44 billion) from Rs15.6 billion a year ago. This compares with a Reuters poll of Rs18.2 billion.

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.

Consolidation is also picking up. This week, mid-sized software firm iGate sealed a deal to buy a majority stake in India's Patni Computer Systems for $1.2 billion, helping it to take on bigger rivals.

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

Stronger rupee

A stronger rupee hurts margins of Indian software services exporters, who earn more than half their revenue from the US.

The European Union's executive has called for greater emergency lending power to underpin the Eurozone, with Portugal widely seen as the next candidate for a bailout.

"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. Europe is Infosys' second-biggest market that brought in about 22 per cent of its revenue in October-December.

  • $60b: value of India's IT services sector
  • 4.2%: decline in share prices of Infosys