Infosys Gets a Lift

An analyst speculates that the company could boost profit targets.
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SAN FRANCISCO -- Shares of India-based tech services bellwether

Infosys

(INFY) - Get Report

rose Thursday on a report that it may raise profit targets.

An analyst with Macquarie Securities told

Bloomberg

that strong demand for outsourcing services would likely lead Infosys to lift its dollar-denominated guidance. The company is scheduled to report its second-quarter results on Oct. 11.

Shares were recently trading up $1, or more than 2%, to $48.30, off the morning's highs.

A spokesperson said the company couldn't respond to the analyst's comments because Infosys is in a "quiet period" leading up to the second-quarter financial report.

An upbeat forecast by Infosys would raise concerns that India's large IT outsourcing firms are suffering under the weight of a sharply appreciating rupee and wage inflation that are squeezing profit margins.

Infosys' first-quarter results underscored the effects these trends as the company handily beat analysts' revenue and profit expectations in dollar terms but appeared less profitable in rupee terms.

The rupee has risen about 9% this year, and broke through the 40-per-dollar level last week at which it had stabilized. At the same time, competition for network and software engineers in India has driven up wages by 12% to 15%.

Another concern dogging the Indian tech services firms is whether their revenue will suffer as problems in the credit and mortgage markets shake their clients in the financial services industry. Many of the big banks that outsource their IT functions have seen investors lose enthusiasm for the debt products they package for mortgage lenders and buyout shops.

Analysts -- and even the financial services firms themselves -- haven't been able to estimate the impact of the credit crunch since many of the debt products are hard to value when there are no buyers. This has complicated efforts to get a feel for how vulnerable the IT services provides may be to the financial storms.

Banking and financial services clients typically generate about 30% of Infosys' revenue, and nearly 50% for hometown rival

Cognizant

(CTSH) - Get Report

.

But analysts and investors have maintained that the credit market problems -- and even an economic slowdown -- will fuel demand for outsourcing services as companies look for more ways to cut costs.

Shares of Cognizant were recently trading up 87 cents to $79.14.