Bangalore: Infosys Technologies, India's No. 2 software services exporter, raised its annual revenue forecast after topping quarterly profit estimates, but a weaker dollar could crimp growth for the export-driven firm.
Infosys, larger rival Tata Consultancy Services and No. 3 player Wipro, have raised salaries and are hiring more staff as companies step up orders amid higher technology spending.
The company, which kicked off results for India's showpiece outsourcing industry, added 7,646 employees in July-September -- its strongest pace of hiring since October-December in 2007.
"I think, it does show that IT spending cycle is stronger than some believed. For the larger companies, given Infosys results, we may see similarly good results," said Vikas Pershad, CEO OF Veda Investments in Chicago.
"All this said, we need to pay attention to the rupee appreciation."
A strengthening rupee against the U.S. dollar, wage hikes and rising competition from global players including IBM and Accenture, could hit profit margins of Indian firms.
Shares in Infosys, valued at $41 billion, rose as much as 2 percent to a record high after the results but then eased. By 0414 GMT, the stock was down nearly 1 percent in a broader Mumbai market down 0.5 percent.
Infosys said net profit for its second quarter ended Sept. 30 rose 13.2 percent to 17.37 billion rupees ($395 million). This compares with a Reuters poll of 17.17 billion rupees.
"However, the continued global economic uncertainty, coupled with extreme currency volatility is a concern for the industry," Chief Financial Officer V. Balakrishnan said in a statement on Friday.
Bangalore-based Infosys, which counts Goldman Sachs, BT Group and BP among its main clients, added 27 clients during the quarter.
"Rupee will play a spoil sport going forward. We don't expect a major bump up in the stock price," said Ambareesh Baliga, vice president of Karvy Stock Broking, referring to Infosys. "Also, there's pressure from overhead expenses."
Indian software companies, which earn half their revenue from the United States, do hedge some of their currency exposures. But a chunk of their costs are in rupees, and therefore currency appreciation tends to squeeze margins.
The firms are also concerned about what they fear are "protectionist measures" by the United States, which include a new immigration bill that would raise the cost of U.S. work visas and a state ban by Ohio on offshoring government work.
Infosys, set up by seven engineers in 1981 with an initial investment of $250, expects dollar revenue to rise 24 to 25 percent in fiscal year 2011, up from a 19 to 21 percent forecast in July.
Analysts had expected Infosys to revise its guidance to 21-24 percent for this fiscal year that ends in March 2011.
With this increase, Infosys, known for its conservative outlook, has raised its full-year dollar revenue guidance for the fourth quarter in a row.