The Hindu Business Line : Raised eyebrows over Infosys reason for guidance

A DAY after Infosys Technologies announced its results, the market found it hard to buy the management's reasoning that clients' pre-occupation with compliance-related issues was partly responsible for slowing its growth momentum.

Infosys said on Thursday that its revenues in the first quarter would be weaker than the fourth quarter because few of its customers were busy complying with rules such as the Sarbanes-Oxley Act, Anti-Money Laundering Act and the Patriot Act aimed at cracking down on accounting fraud.

Market sources said the efforts relating to Sarbanes-Oxley (SOX) compliance had been on for close to 18 months now and it was surprising to see that its impact on Infosys' growth was being felt now.

Infosys reported a 6.9 per cent volume growth in the fourth quarter of FY05, which was a bit sluggish as compared to the double-digit volume growth it reported for past few quarters.

Following a muted guidance by the company, Infosys stock fell by 6.9 per cent (Rs 145.70) to close on Friday at Rs 1,956 on the Bombay Stock Exchange.

"Though the Act has been passed for over two years, none of the Indian IT vendors till now had imagined that it could turn out to be a reason for slowing down the growth. In fact, major IT vendors had earlier spotted an opportunity in US companies implementing the SOX as the Act demanded extensive modifications to internal management information systems," sources said.

The deadline for SOX compliance for US listed companies is June-end 2005.

"As SOX compliance is applicable to every listed US company, it is difficult to ascertain as to why the banking, financial services and insurance sector should be particularly hit," sources said.

The BFSI (banking, financial services and insurance) practice accounted for 33.8 per cent of Infosys' total revenues during the fourth quarter of FY05 as compared to 35.2 per cent in the previous quarter.

With other IT majors like TCS, Wipro and Satyam set to announce their results next week, the market would be waiting to hear from the managements of these companies whether their clients were also facing similar issues.

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