Has Infosys lost its bellwether tag? The question loomed large on Thursday after the Bangalore-based software leader reported first-quarter results that were below market expectations.
Its stock plunged by about 10% - knocking the benchmark indices - before ending 8% down as analysts gave a near-unanimous thumbs-down.
At the heart of the company is an inability to keep prices up for clients, while some count its pains of changing to high-value consulting services amid a global economic crisis hitting its prime markets, US and Europe. Others speak of an internal crisis.
Despite a helpful 8% rupee depreciation that boosted its dollar earnings and a freeze in wage hikes that kept costs in check, India's second-largest software exporter posted a lower-than-expected Rs. 2,289 crore net profit in the April-June quarter, up 33% over a year ago.
More significantly, the export-centric company lowered is full fiscal year revenue growth forecast for 2012-13 from $7.55 billion-$7.69 billion to $7.34 billion. In other words, growth would now be only 5%, not the 8-10% envisaged in April.
Most analysts were expecting Infosys to trim its growth forecast to 6-8%.
"The leadership transformation from Nandan Nilkhani to the present team wasn't as smooth as expected. This internal crisis has coincided with the global slowdown," said Jagannatham Thunugunthala, research head, SMC Global Securities.
Much of its pain emanated from its European business, which contributes 21.4% to its revenues compared to the US, which contributes 64.1%. European business declined 8% on the back of the euro zone crisis.
Infosys' dependence on the banking and financial services sector, which contributes 34% to its revenues, also reflected on its results, as revenues from that segment declined by 1%.
For the first time in many quarters, Infosys said it was not in a position to give a quarter-on-quarter guidance.
Infosys results also compare poorly against its competitor and India's largest software exporter, TCS, which beat market expectations - its net profit up 37% in the first quarter of 2012-13 and up 23% in the fourth quarter of 2011-12.
TCS had said earlier that it expects to beat industry association Nasscom's guidance for revenue growth. Nasscom has projected a 11-14% growth - indicating Infosys is now an industry laggard.
Investors are concerned over the 1.1% decline in dollar revenues in the latest quarter from the previous one. Shibulal told Hindustan Times that pricing declined by 3.7% in the quarter, indicating pressure on profit margins and a struggle to win or hold on to clients.
According to Sunil Jain, vice-president, equity research, Nirmal Bang, Infosys is in the middle of changing its focus to high-value work. "During a transformation phase companies face these kind of challenges," he said.
Ankita Somani, IT analyst at Angel Broking, said the results showed "challenging visibility in the business volumes".
"We see weakness in the stock price due to weak guidance in near term," said Shashi Bhushan, senior research analyst at brokerage Prabhudas Lilladher.