Dollar's Dive Dents Infosys

SAN FRANCISCO -- Investors unloaded shares of India-based tech services giant Infosys (INFY Quote) on fears that the dollar's weakness will crimp the company's profitability.

Shares were recently trading down $2.96, nearly 5.5%, to $46.59, after India's currency, the rupee, approached a nine-year high against the dollar. The rupee has risen about 11% so far this year.

Further frustrating investors, India's central bank continues to sit on the sidelines, refusing to buy dollars or take other measures that would stabilize the rupee's appreciation.

"The Indian central bank has been conspicuously absent from intervention in foreign currency markets," says Ashish Thadhani, senior vice president of research for Gilford Securities. Gilford has not performed investment banking work for Infosys in the past twelve months, and Thadhani does not own the company's shares.

The rupee closed at 39.91 to the dollar, breaking the 40 barrier above which it had stabilized in recent weeks. The Federal Reserve's decision earlier in the week to cut the rate on overnight loans between banks by 50 basis points likely fueled the rupee's surge.

Analysts estimate that every 1% gain the rupee makes against the dollar squeezes Infosys' operating profit margins by 0.2 percentage points. That's less than the estimated 0.5-percentage-point impact on the operating margins of fellow Indian IT services provider Cognizant (CTSH Quote), which has a greater portion of its staff located in the U.S.