Infy guidance lets down Street amid rupee blues

The Infosys guidance for FY08, based on the rupee-dollar exchange rate of Rs 40.58, may not hold good. With continuing foreign inflows in the form of foreign direct investment (FDI), equity investments by foreign buyers and remittances by NRIs, the rupee is likely to strengthen further. The domestic currency could appreciate in the medium term to around Rs 39-39.50 on unabated dollar flows and the Reserve Bank's inability to stem the flow. The rupee is forecast to appreciate by around 2.7 per cent.

With the FII inflows into the Indian markets expected to cross $15 billion in the current calendar year, there is talk of raising the FII ceiling. The government is also under pressure to increase the FDI limit in the services sector. It is also believed that the RBI may not support the dollar.

Infosys' strength is its ability to reduce the operational cost and the huge cash balance of Rs 6,400 crore. The tax reversal of Rs 51 crore and a 300 basis points savings in selling and general administration expenses (S&GA) have prevented the company from faltering on EPS expectations.

Meanwhile, analysts are disappointed with the Infosys' guidance for the year. The company raised its revenue growth guidance in dollar terms by a mere one per cent to 31, though it normally registers good growth rates in the June and September quarters and ups its guidance during this period. The stock plummeted by 4.5 per cent after the results were announced.

Infosys Technologies could not achieve the sales target set for the first quarter of 2007-08 as rupee appreciated higher than expectations. The company's guidance for the first quarter was based on the rupee-dollar conversion rate of Rs 43.10, though the rupee averaged at Rs 41.22 a dollar.

Naturally, the company could not achieve the Q1 sales target of Rs 3,896-3,913 and reported a decline of 3.2-3.6 per cent to Rs 3,773 crore.