From the FT's Lex blog

What’s the matter with Infosys? India’s number two outsourcing company by revenues is supposed to be able to predict the future pretty accurately. Yet its forecast that sales in the year to next March will grow by 8 to 10 per cent, from 16 per cent in the last year, seemed to take everybody by surprise, sending its shares down 13 per cent on Friday.

Never mind that India’s IT industry lobby expects outsourcing revenues to grow 11 to 14 per cent - or that nearly 100 sell-side analysts cover the $90-billion outsourcing sector in India alone (shame on them). Infosys chief executive Sarojini Shibulal has some explaining to do.

The question is whether Infosys’ shock figures relate to problems in the outsourcing industry, or at the company itself. Indian outsources are dependent on the financial services sector, which is hardly a good place to be. And rupee volatility is wreaking havoc across the industry which makes most of its sales in dollars. Still, there are legitimate questions about Infosys’ strategy.

The company is pursuing higher-margin outsourcing revenues: its operating margins have been an average 2 percentage points more than larger rival Tata Consultancy’s over each of the past five years. The trouble is that this type of business leaves Infosys exposed to the discretionary end of spending on outsourcing, such as when banks expand. But banks are not expanding - they are pulling back across the sector. Infosys is already feeling this; its operating margins have been falling for the past two years, and it has lost big financial services clients. That is the backdrop to the group’s worst fourth-quarter revenue growth since the 2008 financial crisis.

The focus on higher-margin business is sensible - but may not work in hard times. Add worries about Infosys’ direction of travel, and Mr. Shibulal, who took over last August, has his hands full. Whether the rest of the industry does, too, will become clear when Infosys’ peers report in the coming weeks.