UPDATE 3-Infosys profit up 18 pct, shares plunge on outlook

(Adds closing share price, company and analyst comments)

By Sumeet Chatterjee

BANGALORE, Oct 11 (Reuters) - Infosys Technologies Ltd (INFY.BO), India's No 2 software services exporter, said quarterly profit rose by nearly a fifth but its shares tumbled 7 percent on market concerns over the rapidly rising rupee and the risk of a U.S. downturn.

The decline was the stock's biggest single-day drop in 3-½ years, with investors disappointed that the profit figure had only matched analysts' forecasts and unhappy with the company's business outlook, which they saw as muted.

Infosys and rivals top-ranked TCS and No 3. Wipro Ltd (WIPR.BO) (WIT.N) have been winning big outsourcing contracts from Western firms seeking to cut costs.

But investors have shunned the sector amid worries about the effect of the rupee hitting 9-½ year highs against the dollar, rising wages and a possible slowdown in a U.S. economy buffeted by the subprime mortgage crisis.

"The earnings indicate it's getting difficult for even a big company like Infosys with the dollar getting weaker," said Neeraj Dewan, director at Quantum Securities.

Infosys shares fell as much as 7.70 percent, dragging down theoutsourcing sector, before ending down 7 percent at 1,976 rupees, their biggest daily fall since May 17, 2004.

The firm, which develops applications, designs supply chains and offers back-office services, said its July-September net profit rose 18 percent to 11.0 billion rupees ($280 million) from 9.3 billion rupees a year ago, in line with forecasts in a Reuters poll of 12 brokerages.

Nasdaq-listed Infosys (INFY.O), which ranks behind Tata Consultancy Services (TCS) (TCS.BO) in India's $31.4 billion software services export industry, forecast a 19.4-19.8 percent revenue increase in rupee terms in the year to March, up from an earlier estimate of a 16.9-18.3 percent rise.

(For INTERVIEW with Infosys CFO, click [nBMA001673])

Infosys said its margins may fall by 50 to 100 basis points in the 2007/08 fiscal year that ends next March.

It said it would lose around 20 billion rupees ($510 million) in revenue in 2007/08 because of the rupee, which has risen more than 12.5 percent against the dollar this year.

"They have been able to show some cost efficiency on the operating margin front, but growth concerns are still there, be it the U.S. economy slowdown or the rupee appreciation," said Harshad Deshpande, IT analyst at Religare Securities.

Those concerns saw Infosys shares fell 1.7 percent in July-September, sharply underperforming an 18 percent rise in the main Mumbai index .BSESN.

But sentiment had been picking up, with the stock up 12 percent this month at Wednesday's close.