Infosys Technologies Ltd beat expectations with a 17 percent rise in quarterly profit and raised its full-year forecast at the lower end on hopes for a pick up in outsourcing demand from overseas clients.
India's No. 2 software services exporter forecast consolidated revenue to fall 3.1-4.6 percent to $4.45-$4.52 billion in the year to March 2010. It expects earnings to decline 11.1-12.3 percent in dollar terms.
That compares with its April forecast of earnings to fall 11.1-15.1 percent on a revenue fall of 3.1-6.7 percent.
We believe that in the short term the global economic environment will continue to be challenging, said S. Gopalakrishnan, the chief executive of the Nasdaq-listed company, which kicks off the sector's results.
The Indian software sector's scorching pace of growth has halted as many leading customers are struggling to stay afloat, have gone bankrupt, or are tackling severe cost cuts, leaving little room to boost technology spending.
Infosys, rivals Tata Consultancy Services and Wipro also face competition from big players, IBM , Accenture and Hewlett-Packard who have raided their home-turf and are winning contracts.
Analysts said reduced pace of deal cancellations and signs of stability in the key financial sector was positive, but a pick-up in the sector's growth was unlikely.
Still there are concerns and their guidance shows they are not very optimistic about business recovery in the IT sector. Let's wait for a quarter or two, said K.K Mital, head of portfolio management services at Globe Capital in New Delhi.
Infosys, which develops applications, supply chains and runs back-office services, said net profit rose to 15.27 billion rupees ($314 million) in April-June, its fiscal first quarter, from 13.02 billion a year ago.
A Reuters poll had estimated a net profit of 13.97 billion rupees for the company, which counts Goldman Sachs , Philips Electronics , BT Group Plc and Australia's top phone company Telstra Corp among its clients.
Analysts said the upward revision in dollar revenue could be due to the U.S. currency's fall against the euro and the sterling in April-June. Infosys earns more than a quarter of its revenue in currencies other than the dollar.
Powered by an army of low-cost, English-speaking workers, India's $60 billion outsourcing sector provides services ranging from managing complex computer networks and call centers to software coding to maintaining technology operations.
Infosys stunned markets in April when it forecast its first decline in annual revenue in dollar terms, marking a watershed for a sector that is a magnet for thousands of young job-seekers in the country.
Infosys and its key rivals are expanding in markets such as Europe, Latin America and Asia Pacific to cut their dependence on the United States, which accounts for more than half the sector's revenue.
Shares in Infosys, valued at more than $20 billion, climbed 34 percent in April-June versus a 44 percent rise in the sector index <.BSEIT> and a 49 percent jump in the main index <.BSESN>.
(Reporting by Sumeet Chatterjee; Editing by Ranjit Gangadharan and Anshuman Daga)