INFOSYS 1Q Result will set the tone of the market

Infosys profits face hurdels on strong Rupee & salary hikes that could trim forecast
It's a contrast they won't like, but can't avoid। As another season of earnings announcements gets under way this week, investors will likely look forward to Infosys Technologies' results Wednesday with butterflies in bellies, hoping market leader won't cut its outlook for the year started April 1.

For investors who are used to the company's superlative earnings growth & staggered earnings forecast revision (upwards) at the end of each quarter, it will probably be a first.

But the near 6% appreciation for the Indian rupee against the U।S. currency during the April-June period was just too bad. Together with the salary hikes Infosys was to give its employees during the quarter -- wages are its biggest expenditure item -- the impact on margins could be significant.

Sure, Infosys could have deflected some of that impact by executing an extra bit of work at its low-cost centers in India than at client locations in the west, cutting costs or by billing customers more dollars per hour। It will be really shocking if it didn't, but the impact from a giant move in currencies and wage inflationary pressures in an otherwise booming industry can't just be wished away.

Still, after the unusual underperformance of Infosys and its peers on the BSE during the past several weeks, the street seems to believe that the bad news is already priced in, and some devils in its earnings announcement could be overlooked। A 2%-4% reduction in its earnings-per-share forecast for the year, for example, may be forgiven, as some still believe that it will easily make up for it in subsequent quarters.

On the other hand, Infosys may just have to retain its forecast on Wednesday for another champagne bottle to be opened.