BANGALORE, INDIA: Infosys Technologies' improved outlook failed to impress investors on Friday, suggesting the road to recovery for India's showpiece software services companies will be long and bumpy.

The results from the No. 2 outsourcer showed that hard-hit clients were gradually loosening their purse strings, but a firming rupee is playing spoilsport for the $60 billion sector.

"Whatever good has happened, it's already there in the price and the market is not going to reward you for that at such levels," said Gajendra Nagpal, CEO at Unicon Financial. "They are ready to punish you for any negative development."

A global economy on the mend and some large deals won by firms including top-ranked Tata Consultancy Services and Infosys have already boosted hopes of a revival in business.

Indian IT firms were hit in the global economic downturn as their core financial clients slammed the brakes on technology spending and demanded sharp price cuts.

They also face rising competition from IBM, Accenture and Hewlett Packard, who are expanding in India.

Analysts said the worst was probably over for IT firms.

"We cannot expect a dramatic turnaround, but yes, there are visible signs of an improvement," Ved Prakash Chaturvedi, managing director at Tata Asset Management in Mumbai.

"The IT sector as a whole is going to be an important part of any portfolio with a rise in earnings momentum," said Chaturvedi, whose company owns Infosys shares.

Nasdaq-listed Infosys, the first in the sector to kick off results, posted its slowest quarterly profit growth in more than five years on Friday.

It counts Goldman Sachs, BT Group and Philips Electronics among its more than 550 clients and employs over 100,000 staff.

Shares in Infosys, valued at $28 billion, rose as much as 3.7 per cent after the results, but reversed gains to be down 1.6 per cent by 0930 GMT in line with a weak Mumbai market.

Spoilsport currency

Infosys said clients were still cautious about the economic environment but demand was picking up. CEO S. Gopalakrishnan said Infosys won nine deals worth more than $50 million in the last six months and was chasing 12-15 more.

He said global M&A was helping the firm win more contracts, and said Infosys was also on the look out for acquiring companies with revenues of more than $400 million.

The Indian currency's 13 per cent gain against the U.S. dollar since early March is a big dampener for the firm, which earns more than half its revenue from North America, while most of its expenditure is in rupees.

"Of course, this is a big concern because there is too much volatility," said CFO V. Balakrishnan. "We have to manage our currency more efficiently ... otherwise it will kill all the export industries."

Infosys reported a 7.5 per cent rise in net profit for the fiscal second quarter ended September, slightly above market expectations, and raised its forecast for revenue and earnings in dollar terms for the full year to March.

Shares in Infosys jumped 30 per cent in July-September versus a 39 per cent rise in the sector index and an 18 per cent rise in the broader market.

Infosys, which develops applications, designs supply chains and offers backoffice services, expects revenue in dollars for the full year to decline 1.0-1.3 per cent to $4.60-$4.62 billion, smaller than its July forecast for a drop of 3.1-4.6 per cent.

It forecast earnings per share to fall 6.7-7.1 per cent in dollar terms for the full year, less than its previous estimate of an 11.1-12.4 per cent drop.

For July-September, it posted net profit of 15.4 billion rupees ($332 million), up from 14.32 billion a year ago. Revenue rose 3 per cent to 55.85 billion rupees.

A Reuters poll had estimated a profit of 15.11 billion rupees on revenue of 55.95 billion.