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Infosys Rides Tech Spending Strength

SAN FRANCISCO -- Investors are showing renewed enthusiasm for one of India's flagship tech services giants, Infosys (INFY - Get Report), ahead of what is expected to be a strong earnings report late Wednesday.

The company's shares recently climbed about 1.5% to $54.86, on top of a gain of more than 3% Tuesday, as traders turned their focus to strong demand for tech support services, rather than profit headwinds like India's appreciating currency.

Early indications suggest that spending on IT services remains healthy. In late September, Accenture (ACN - Get Report) reported 23% revenue growth, in local currency terms. Robust sales growth in Europe gave investors hope that these regions can help offset an economic slowdown in the U.S., outsourcers' largest market. IT service providers have also indicated that they have been able to phase in price increases.

What's more, business from Infosys' largest customer bases has far outpaced overall market growth. In the last quarter, revenue grew 39% from financial services clients, 32% for manufacturing clients and 75% from telecom clients.

In light of the favorable outlook, Ashish Thadhani of Gilford Securities believes that Infosys' stock is retuning to a reasonable valuation after investor fears led to excessive selling. Gilford doesn't have an investment banking relationship with the company.

In past months, investors lost confidence that Indian outsourcers could sustain their profit growth and competitiveness in the face of double-digit wage gains for Indian IT employees and a nearly 12% year-to-date appreciation of the rupee, India's currency, against the U.S. dollar. Infosys shares remain about 10% below their 52-week highs.
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