In terms of performance in the next couple of quarters, the following factors assume importance:

Importantly, gains from foreign exchange contracts and reversal of provision for bad and doubtful debts should boost profit growth and help Infosys beat its guidance target.

Beyond 2003-04

Infosys now looks set to post an EPS of between Rs 180 and Rs 185 for the year ended March 2004. This would place the earnings growth for 2003-04 at about 27 per cent. However, the upside to the stock price is predicated on similar or marginally better growth for at least couple of years beyond March 2004.

A greater degree of predictability has returned to estimates of revenue growth beyond that period. The surge in demand seen in 2003 is expected to continue. Importantly, Infosys disclosed in the conference call after the earnings announcement that, in the annual rate negotiations in the last quarter of 2003-04, it does not expect to agree to any decline in billing rates. These factors might assure robust earnings growth beyond March 2004 too.

However, risks remain. The appreciating rupee could offset the stability in billing rates and mute earnings growth. For every one-rupee decline in the value of dollar, the operating margins of Infosys will dip by 0.5 per cent. Any imposition of visa restrictions by the US can threaten revenue growth.

Besides, Infosys boasts of one of the healthiest margins in the business. It is possible that its customers will continue to drive down prices. These risks suggest a high downside to price if revenue growth is not as robust as it has been in 2003. Investors would need to keep an eye out for events that shed light on trends in revenue growth to constantly evaluate their investment strategy.

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