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Investors, analysts to track Infosys for growth momentum

BANGALORE: Investors and analysts will be watching Infosys' earnings announcement on Friday for signs of a sustainable turnaround after better-than-expected results during the December quarter. 

The average estimate for the Bangalore-based company's sequential growth is in the 2-3 per cent range in rupee terms. In the backdrop of unpredictable performance over the past year, there has been speculation whether India's second-largest software exporter would continue with its practice of giving full-year growth guidance. Infosys, which was once considered a sector bellwether, stopped giving quarterly guidance from the second quarter of 2012-13. 

A decision to stop giving guidance would be a surprise for the company, whose earnings and management commentary would set expectations for India's $108-billion information technology sector. 

"There are doubts among investors on whether 
InfosysBSE 1.33 % will formally guide for fiscal 2014. We believe that, as an industry bellwether it should guide and stick to its stated objective of reducing information asymmetry with investors," wrote Abhiram Eleswarapu, analyst with brokerage firmBNP ParibasBSE 1.50 %. 

In the last week, shares of Infosys have dropped more than 5 per cent on the 
BSE to 2,800. 

If it indeed gives a guidance, analysts estimate it to be in the range of 10-15 per cent for the year to March 2014. 

Infosys' fourth-quarter performance and outlook will give investors better clarity on how technology budgets are growing. Over the past few quarters, Infosys's management has said visibility on client spending is low because of uncertainty in large markets such as the 
United States and Europe. 

For the fourth quarter, the software exporter's net profit is expected to drop 2-3 per cent, and operating profit margins are likely decline by about 50 to 60 basis points to 27.5 per cent on account of onsite wage increases in January and lower pricing. 

"The deal pipeline is healthy, but the conversion of pipeline (to order book) is not happening at the pace they wanted. We would be keen on watching their yearly guidance, growth in US and financial services," said 
Pratik Gandhi of IDBI Capital. 

Cross-currency movements are expected to have a negative impact of 20-80 basis points on margins during the fourth quarter. According to Gandhi, even though most of Infosys' revenue is in US dollars, about 28 per cent of its business is billed in other currencies. Some analysts are sceptical of a turnaround at Infosys yet, which has been underperforming the industry for several quarters now. In the third quarter, analysts were expecting Infosys to revise its annual guidance downwards.