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Tuesday, June 24, 2008

RBI hikes CRR, Repo rate

In what may be described as an attempt to put a check on the spiraling inflation, which zoomed to a record 11.05%, the highest in 13 years last week, the Reserve Bank of India hiked the key rates on Tuesday evening. While the Repo Rate was raised by 50 basis points to 8.5%, the highest since 2000, the Cash Reserve Ratio too saw a 50 basis point increase to 8.75%. Repo Rate is the rate at which RBI lends money to other banks.

The apex bank has said that the CRR hike will be implemented in two stages-the first of 25 basis points will be effective from July 5 and the remaining half from July 19.

Announcement of hiking the rates comes close on the heels of RBI Governor Y V Reddy discussing with Prime Minister Manmohan Singh and Finance Minister P Chidambaram the prevailing inflation scenario.

The RBI’s attempt to suck liquidity from the market by increasing the cash reserve will have a direct impact on the interest rates on home and retail loans, which are expected to rise. While the apex bank described it as a painful measure “forcefully” taken due to rise in oil prices, it also expressed hope that the measure would rein the galloping inflation.

In a precursor to raising the CRR from 8.25 per cent to 8.75 per cent in two installments beginning July 5 and the Repo Rate from 8.0 per cent to 8.5 per cent with immediate effect, Reddy had said on Monday that the apex bank would do every thing to ease the inflationary pressures.

Expressing concern over rising inflation, RBI said, "Besides oil prices there are some underlying inflationary pressures impacting inflation in India."

BSE Bulk Deals To Watch - June 24 2008

Deal Date Scrip Code Company Client Name Deal Type * Quantity Price **
24/6/2008 532975 AISHWARYA TE ANGEL INFIN PRIVATE LIMITED B 226183 42.71
24/6/2008 532975 AISHWARYA TE ANGEL INFIN PRIVATE LIMITED S 216183 42.69
24/6/2008 532981 ANU LABS RUPESH DALAL B 69385 398.47
24/6/2008 532981 ANU LABS MANISH SARVAIYA B 83730 401.91
24/6/2008 532981 ANU LABS GOLDSTAR FINVEST PVT LTD S 65000 386.09
24/6/2008 532981 ANU LABS RUPESH DALAL S 69385 398.37
24/6/2008 532981 ANU LABS MANISH SARVAIYA S 83730 400.10
24/6/2008 531932 C G IMPEX PRAFULLABEN AMRUTBHAI SONI B 75108 13.19
24/6/2008 531137 GEMSTONE INV ANKIT R. SANCHANIYA S 43100 22.75
24/6/2008 531137 GEMSTONE INV HEMANT M SHETH S 43000 22.50
24/6/2008 531687 KARUTURI GLO CLSA MAURITIUS LIMITED B 2375000 21.20
24/6/2008 512559 KOHINORFOODS PRAGYA MERCANTILE PVT LTD S 172626 98.25
24/6/2008 532494 MICRO TECHN PR VYAPAAR PRIVATE LIMITED B 53000 224.69
24/6/2008 532494 MICRO TECHN PRAGYA MERCANTILE PVT LTD S 53000 224.66
24/6/2008 532986 NIRAJ CEMENT PRAKASH MOHANLAL JAIN B 608373 180.50
24/6/2008 532986 NIRAJ CEMENT PRABHUDAS LILLADHER PVT. LTD. B 197486 180.34
24/6/2008 532986 NIRAJ CEMENT N D NISSAR B 222196 178.90
24/6/2008 532986 NIRAJ CEMENT VEERAJ BHABHLUBHAI WALA B 65100 180.05
24/6/2008 532986 NIRAJ CEMENT BHAVARLAL BABULAL JAIN B 381176 188.95
24/6/2008 532986 NIRAJ CEMENT PRAKASH MOHANLAL JAIN S 608373 180.70
24/6/2008 532986 NIRAJ CEMENT PRABHUDAS LILLADHER PVT. LTD. S 197486 180.63
24/6/2008 532986 NIRAJ CEMENT N D NISSAR S 222196 179.08
24/6/2008 532986 NIRAJ CEMENT N.C.JAIN S 53092 179.02
24/6/2008 532986 NIRAJ CEMENT VEERAJ BHABHLUBHAI WALA S 80100 189.71
24/6/2008 532986 NIRAJ CEMENT BHAVARLAL BABULAL JAIN S 381176 185.61
24/6/2008 532988 RANE ENGVL MANSUKH STOCK BROKERS LTD B 53516 136.25
24/6/2008 532988 RANE ENGVL B K SHAH CO B 79456 143.06
24/6/2008 532988 RANE ENGVL BHANDARI RAKHI KALPESH B 62648 140.66
24/6/2008 532988 RANE ENGVL MANSUKH STOCK BROKERS LTD S 53516 137.10
24/6/2008 532988 RANE ENGVL B K SHAH CO S 79456 142.97
24/6/2008 532988 RANE ENGVL BHANDARI RAKHI KALPESH S 62648 143.62
24/6/2008 532884 REFEX REFRIG TUSHAR RAMESHBHAI PATEL B 445551 210.83
24/6/2008 523628 WEAROLOGY LT MAVI INVESTMENTS FUND LTD B 100000 96.99

NSE Bulk Deals to Watch - June 24 2008

Date,Symbol,Security Name,Client Name,Buy/Sell,Quantity Traded,Trade Price / Wght. Avg. Price,Remarks
24-JUN-2008,KNL,Karuturi Networks Limited,CLSA (MAURITIUS) LIMITED,BUY,2625000,21.35,-
24-JUN-2008,PANTALOONR,Pantaloon Retail (India),FIDELITY FUNDS - EMERGING MARKETS FUND,BUY,1055904,458.60,-
24-JUN-2008,PRAENG,Prajay Engineers Syndicat,SWISS FINANCE CORPORATION (MAURITIUS) LTD SUB A/C. OF UBS,BUY,250000,109.09,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,ASTUTE COMMODITIES & DERIVATIVES Pvt Ltd,BUY,35963,138.91,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,B K SHAH CO KETAN BHAILAL SHAH,BUY,88526,144.04,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,CHOKHANI SECURITIES LTD,BUY,37683,141.50,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,MANSUKH SECURITIES & FINANCE LTD,BUY,45123,140.59,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,PRASHANT JAYANTILAL PATEL,BUY,28557,142.63,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,TRANSGLOBAL SECURITIES LTD.,BUY,55251,141.02,-
24-JUN-2008,RBL,Rane Brake Lining Limited,TRANSGLOBAL SECURITIES LTD.,BUY,54642,71.11,-
24-JUN-2008,VALECHAENG,Valecha Engineering Limit,INDIA MAN FUND (MAURITIUS) LTD. DEUTSCHE BANK,BUY,65000,153.90,-
24-JUN-2008,PANTALOONR,Pantaloon Retail (India),FIDELITY FUNDS - EMERGING MARKETS FUND,SELL,1055904,458.60,-
24-JUN-2008,PRAENG,Prajay Engineers Syndicat,GOLDMAN SACHS INVESTMENTS MAURITIUS I LTD,SELL,273063,109.26,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,ASTUTE COMMODITIES & DERIVATIVES Pvt Ltd,SELL,35963,139.55,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,B K SHAH CO KETAN BHAILAL SHAH,SELL,88520,145.24,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,CHOKHANI SECURITIES LTD,SELL,37683,142.45,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,MANSUKH SECURITIES & FINANCE LTD,SELL,45123,139.87,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,PATHPIONEER MANG.SER.PVT.LTD,SELL,30405,146.12,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,PRASHANT JAYANTILAL PATEL,SELL,28557,143.75,-
24-JUN-2008,RANEENGINE,Rane Engine Valve Limited,TRANSGLOBAL SECURITIES LTD.,SELL,55251,140.98,-
24-JUN-2008,RBL,Rane Brake Lining Limited,TRANSGLOBAL SECURITIES LTD.,SELL,54642,71.04,-

Free fall continues

Nervousness gripped the market for the fifth consecutive session as selling pressure since early trades saw the index remain weak all through the trading session. Although the Sensex resumed 20 points above its previous close at 14,313 and moved up to touch an early high of 14,433, the market soon snapped gains owing to the emergence of selling pressure. As correction continued unabated, the index tumbled below the mark to touch the intra-day low of 13,991 by end of the trade. While the market languished in negative territory through the noon trades, the Sensex signed off the session with losses of 187 points at 14,107. The Nifty also ended in the red at 4,191, down 75 points.

The market breadth was weak. Of the 2,707 stocks traded on the BSE, 1,922 stocks declined, 722 stocks advanced and 63 stocks ended unchanged. All the sectoral indices ended at lower levels. The BSE Metal index fell 3.52%, the BSE PSU index dipped 2.80%, the BSE FMCG index shed 2.54% and the BSE IT index was down 2.17%.

Among the draggers, Hindustan Unilever dropped 5.32% at Rs208, Tata Steel shed 4.60% at Rs690, NTPC tumbled 3.92% at Rs153.50, ONGC declined 3.61% at Rs840 and Larsen & Toubro was down 3.58% at Rs2,290.10. Ambuja Cement at Rs80.15, HDFC Bank at Rs1,046, Grasim Industries at Rs2,060, Infosys at Rs1,765.10 were down around 3% each.

Select index heavyweights managed to register decent gains. HDFC rose 2.32% at Rs2,266.20, Ranbaxy Laboratories gained 2.31% at Rs525.30, Reliance Industries scaled up 2.18% at Rs2,066.20, BHEL added 2.17% at Rs1,391, Jaiprakash Associates jumped by 1.24% at Rs155.25 and SBI advanced 0.57% at Rs1,211.95.

Metal stocks came under sharp hammering. Nalco slumped 8.56% at Rs370.60, Welspun Gujarat lost 8.06% at Rs308.10, Ispat Industries declined 5.80% at Rs24.35 and Sterlite Industries was down 5.24% at Rs699.15. Shree Precoated, Tata Steel, Jindal Steel, Gujarat NRE, Hindalco and Sesa Goa Exports dipped 2-4% each.

Over 1.39 crore Reliance Natural Resources shares changed hands on the BSE followed by IFCI (1.32 crore shares), Reliance Petroleum (1.03 crore shares), Chambal Fertilisers (0.99 crore shares) and Ispat Industries (0.84 crore shares).

Post Session Commentary - June 24 2008

Indian market fell sharply to close in red as intense selling pressure was seen across board. Though the market showed some buying interest from the investors at the initial session but later tumbled to give up all its gains as the global cues are supportive. Also the rising inflation concerns supported by the crude oil and the the possibility of it resulting in some monetary tightening measures from the Reserve Bank of India, all contributed to the negative sentiments in the market The market lost the momentum after the mid session to close on the back foot due to lack of support from the investors. All indices closed in red and metal stock was major victim, which ended with a cut of more than 3.5 %. The market breadth was negative as 1,925 stocks closed in red and 718 stocks closed in green while 64 stocks remained unchanged.

The BSE Sensex closed lower by 186.74 points at 14,106.58 and NSE Nifty ended down by 75.3 points at 4,191.10. The BSE Mid Caps and Small Cap closed negative with fall of 102.49 points and 129.88 points 5,712.74 and 7,006.42 respectively. The BSE Mid Cap and BSE Small Cap ended with a cut of more than 1.5% each. The BSE Sensex touched intraday high 14,432.90 and intraday low of 13,991.31.

Losers from the BSE are HUL (5.32%), Tata Steel (4.60%), NTPC Ltd (3.92%), ONGC (3.61%), L&T Ltd (3.58%), Ambuja Cement (3.52%), HDFC Bank Ltd (3.31%), Infosys Tech (2.95%) and Grasim industries (2.79%).

The Metal index closed lower by 487.51 points at 13,368.82. Lossers are NALCO (8.56%), Welspan Guj Sr (8.06%), Ispat industries (5.80%), Sterlite In (5.24%), Sh Precoated (5.19%), Tata Steel (4.60%), and Jindal Steel (3.26%).

The Capital Goods index dropped by 157.41 points to close at 10,639.60. Major losers are Seimens Ltd. (5.58%), Bharat Elect (4.70%), Areva (4.54%), L&T Ltd (3.58%), Aiaengineer (3.49%) and Havells India. (2.93%).

The Banking index closed down by 130.92 points at 6,499.66. Lossers are Allahabad Bank (5.20%), Kotak Bank (4.39%), Federal Bank (3.31%), HDFC Bank Ltd (3.31%), Andhra Bank (2.98%), Axis Bank (2.88%) and OBC (2.29%).

The IT index went down by 91.91 points to close at 4,141.51 as Infosys Tech (2.95%), Tech Mahindra (2.21%), Moser Bayer (2.20%), Mphasis Ltd (2.14%) and Wipro Ltd (1.95%) closed in negative territory.

The Reality Index closed lower by 89.48 points at 5,098.44. Lossers are Pheonix Mill (7.79%) along with Ansal Infra (5.41%), Mahindra Life (4.45%), Housing Development (4.22%), Omaxe Ltd (2.95%) and Purvankara (2.84%).

The Auto index closed down by 80.64 points at 3,842.77. As Exide Industries (4.81%), Hero Honda Motors (4.34%), Cummins India (2.56%), Bosch Ltde (2.50%), TVS Motors Ltd (2.50%) and Appollo Tyre (2.14%) closed in negative territory.

Downward Ride Continues In Asian Markets

Hang Seng, Nikkei Follows Market Trend While Shanghai Stand Aside With Gains

Asian markets were broadly lower, with indexes in Hong Kong and Australia declining for a fourth straight session on weakness in banking stocks. Trading volumes were thin in most markets as investors stayed on the sidelines ahead of the U.S. Federal Reserve's decision on interest rates scheduled to release tomorrow.

In Hong Kong, the Hang Seng Index fell 1.1% to 22,456.02 and the Hang Seng China Enterprises Index gave up 1.8% to 12,018.51. In Sydney, the S&P/ASX 200 index recorded a marginal gain of 0.1% gaining to 5,290 as lot of poor performing stock are being closed out as the financial year in Australia come to an end on 30 June 2008.

Chinese shares in Shanghai wavered between positive and negative zones, as bargain-buying in airline and insurance stocks after a string of recent losses was countered by losses in Baoshan Iron & Steel Co., after the steel maker agreed to an 85% price increase on iron ore supplies from Rio Tinto. At the end of day the Shanghai Composite gained 1.5% to 2,803.02, bouncing off from the day's low at 2,728.83. The Shenzhen Composite rose up by 2.8% reaching 801.50 levels.

In Tokyo, shares continued slipping on high crude-oil prices and weakened yen. At the closing bell the Nikkei 225 Average was marginally down by 0.1% closing at 13,849.56, while the broader Topix index gained 0.1% to 1,349.19.

Elsewhere, South Korea's Kospi shed 0.3% to 1,710.84, New Zealand's NZX 50 index rose 0.3% to 3,298.02, Singapore's Straits Times Index lost 0.4% to 2,968.46 and Taiwan's weighted index dropped 1.8% to 7,738.12.

Malaysia's KLSE Composite gained by 0.4% to 1,200.28 while the Thailand's SET was marginally down by 0.5% at 546.33.

In the afternoon trading India's Sensitive Index, or Sensex, was down by 1.2% to 14,125.49 and the broader S&P/CNX Nifty fell by 1.5% to 4,200.55.

In Asian currency trading, the U.S. dollar bought 108.07 yen, compared with 107.85 yen late Monday in New York.

Shares of energy producers advanced, as August-crude oil futures rose as much as six cents to $136.80 a barrel in electronic trading, after adding $1.38 to $136.74 a barrel on the New York Mercantile Exchange.

On Wall Street, the Nasdaq Composite fell 20.35 points to 2,385.74 and the Dow Jones Industrial Average slipped 0.33 points to 11,842.36, while the S&P 500 index rose 0.07 points to 1,318.

European shares dragged lower from early highs, pulled down by a second day of notable losses for the auto sector accompanied by negative economic news. In the opening trade the national indexes were trading weaker, with the U.K. FTSE 100 index was marginally up 0.1% at 5,672.80 while the German DAX 30 index down 0.4% at 6,564.40 and the French CAC-40 index down 0.4% at 4,493.98.

On the economic front the day began with a series of negative economic news. The GfK market research institute said its consumer climate index for Germany is forecast to be at 3.9 points in July compared with 4.7 points in June. The GfK also revised down the June figure from the 4.9 points it had forecast last month. GfK said the German consumer climate deteriorated in June, due to continuously rising energy prices and an impending further massive increase in gas prices.

GfK cut its full-year 2008 forecast for German consumer spending growth for the second time this year, to 0.5 % from 1.0 %. In March, it cut its forecast to 1.0 % from 1.5 %.

At 9.22 GMT U.K. FTSE 100 index was back in red falling by 0.8% to 5,620. The German DAX 30 index plunge further by 0.9% at 6,530.77 while the French CAC-40 index down 1.3% at 4,451.92.

Looking ahead the day is scheduled to release some of the key indicators for US. It will start with S&P Shiller home price index that will be followed by consumer confidence data for June. However the focus of the eve will be on Housing price index and Richmond Fed manufacturing index. In the late evening we have Merchandise trade balance data for Japan.

Bears rule the roost

Bears are in total command of the proceedings on the stock exchanges. Bulls are in hibernation. Equities extended losses for the fifth straight day today with the barometer index BSE Sensex falling below the psychologically important 14,000 mark for the first time in 10 months since late August 2007. However, it settled above that level. Heavy selling pressure in index pivotals during the second half of the trading sessions spooked the market. Metal, IT and FMCG shares were the worst hit in today’s trade.

Choppy swings were witnessed in late trade with the Sensex even bouncing in the green for a while led by solid rally in index heavyweight Reliance Industries (RIL). However, as RIL quickly pared gains, the Sensex plunged in late trade. The market breadth was weak. All sectoral indices in BSE suffered losses. Asian and European markets were trading lower.

Fears of further increase in interest rates to tame inflation continued to weigh on the market sentiment. Reserve Bank of India (RBI) governor signaled on Monday, 23 June 2008, that the central bank will tighten monetary policy further to tackle inflation that surged past 11% in early June 2008 to a 13-year high.

As per provisional data, foreign funds today, 24 June 2008, bought shares worth a net Rs 90.06 crore. Domestic funds bought shares worth a net Rs 475.94 crore.

The 30-share BSE Sensex was down 186.74 points or 1.31% at 14,106.58. Sensex lost 302.01 points at day’s low of 13,991.31 hit at the fag end of the trading session. It was the Sensex's lowest level in 10 months since 22 August 2007.

At the day’s high of 14,432.90, the Sensex gained 139.58 points in early trade.

The broader based S&P CNX Nifty slumped 75.30 points or 1.76% at 4,191.10. Nifty hit a low of 4,156.10, its lowest level in 10 months since 24 August 2007.

Nifty June 2008 futures were at 4159.70, a sharp discount of 31.40 points as compared to spot closing.

Bears have been calling the shots on the bourses for a while now. The Sensex has lost 1590.32 points or 10.13% in five trading sessions, from its close of 15,696.90 on 17 June 2008, due to political uncertainty, and on fears of further rise in interest rates by the Reserve Bank of India to combat inflation

The barometer index has shaved 6180.41 points or 30.46% in the calendar year 2008 so far from its close of 20,286.99 on 31 December 2008. It is down 7100.19 points or 33.48% from its all-time high of 21,206.77 struck on 10 January 2008.

In a crucial global event, the US Federal Reserve is expected to hold key rate for short-term lending at its current 2%, at its two-day policy meeting that begins today, 24 June 2008. Investors will scrutinise the statement accompanying the decision for clues on the future course of monetary policy.

Meanwhile, a crucial UPA-Left meeting on the controversial civilian nuclear deal with the United States is scheduled tomorrow, 25 June 2008. The left allies, whose parliamentary support is crucial to the Congress-led United Progress Alliance (UPA) government at the Centre, have said they would withdrew support if the government went ahead with the deal.

All the sectoral indices on BSE were in the red today. The BSE Metal index (down 3.52% to 13,368.82), BSE Power (down 1.64% to 2,398.09), BSE Realty index (down 1.72% at 5,098.44), BSE FMCG index (down 2.54% to 2,146.63), BSE Auto (down 2.06% at 3,842.77), BSE TecK index (down 2.08% to 3,161.59), BSE Consumer Durables index (down 1.46% to 3,719.09), BSE IT index (down 2.17% to 4,141.51), BSE Bankex (down 1.97% at 6,499.66), BSE Capital Goods index (down 1.46% at 10,639.60), BSE PSU index (down 2.80% to 6,040.08), underperformed the Sensex.

The BSE Oil & Gas index (down 0.28% to 9,146.43), and BSE Health Care index (down 1.29% at 4,165.61), outperformed the Sensex.

The market breadth was weak. On BSE, 1930 shares declined as compared to 713 that advanced. 67 remained unchanged.

The BSE Mid-Cap index slipped 1.76% to 5,712.74 and the BSE Small-Cap index fell 1.82% to 7,006.42. Both these indices underperformed the Sensex.

The total turnover on BSE amounted to Rs 5355 crore as against Rs 5,035.83 crore yesterday, 23 June 2008. Turnover on NSE’s futures & options segment amounted to Rs 70250.13 crore as compared to Rs 66917.33 crore yesterday, 23 June 2008.

Reports that Indian coroprates have paid higher advance tax in the first installment of June 2008 over the corresponding period of the previous year has failed to lift the sentiments on the bourses. As per reports, corporate advance tax payment rose 27% to Rs 21,000 crore in the first installment of 15 June 2008. Advance taxes are paid in four installments, in June, September, December and March. Usually, the first installment is 15% of the total tax estimated to be paid for the whole fiscal.

Among the 30-member Sensex pack, 24 declined while the rest gained in today's trade. India's largest private sector engineering company in terms of order book Larsen & Tourbo declined 4.23% to Rs 2294.95

Metal shares declined sharply. India’s largest private sector steel maker Tata Steel plunged 7.08% to Rs 692.80 on 12.52 lakh shares. It was the top loser from Sensex pack.

Sterlite Industries (down 5.39% to Rs 698.10), Hindalco Industries (down 3.65% to Rs 143), National Aluminium Company (down 11.20% to Rs 359.95), Jindal Steel & Power (down 4.95% to Rs 1810.05), and Sesa Goa (down 4.3% to Rs 3230) were the other major losers from the metal sector.

Hindustan Unilever (down 6.38% to Rs 212.10), Dabur India (down 4.40% to Rs 88.10), ITC (down 2.74% to Rs 190.05), Marico (down 5.58% to Rs 58.40), and Nestle India (down 0.70% to Rs 1648), edged lower from the FMCG sector.

Among the real estate stocks, Ansal Infrastructure (down 5.41% to Rs 83), DLF (down 1.43% to Rs 439.85), Unitech (down 0.47% to Rs 170.65), Sobha Developers (down 1.66% to Rs 323.85), and Parsvnath Developers (down 1.84% to Rs 141.15), declined.

India’s largest private sector company in terms of market capitalisation and oil refiner Reliance Industries (RIL) saw high volatility in the day. The stock settled 0.80% higher to Rs 2038.30 on 16.45 lakh shares. The stock swung wildly in a range of Rs 2012 and Rs 2133.70 during the day. As per recent reports, RIL plans to open its first North American plant in North Carolina by investing $215 million.

India’s largest power generation company in terms of sales, NTPC lost 4.84% to Rs 154.20. As per reports, NTPC had paid 6.9% lower advance tax at Rs 188 crore in the first installment of this financial year over the corresponding period in the previous year.

India’s largest state-run oil exploration company Oil & Natural Gas Corporation (ONGC) fell 4.75% to Rs 845.15. ONGC has decided to exit projects to set up a refinery and a special economic zone Andhra Pradesh, the company said on Monday, 23 June 2008. ONGC will unveil its Q4 and year ended March 2008 results on Wednesday, 25 June 2008.

Banking stocks slipped on selling pressure. ICICI Bank (down 2.95% to Rs 700.10), HDFC Bank (down 4.62% to Rs 1046) and State Bank of India (down 0.17% to Rs 1203), edged higher.

Software stocks slipped in the red after firm start. Satyam Computer Services (down 2.09% to Rs 450.50, off day’s high of Rs 465.75), Infosys Technologies (down 4.08% to Rs 1772.05, off day’s high of Rs 1859.90), and TCS (down 1.26% to Rs 847, off day’s high of Rs 864.80) declined.

Wipro, the country’s third largest software services exporter was down 2% to Rs 470. Wipro has reportedly raised close to Rs 1,400 crore (35 billion Yen) through external commercial borrowings (ECBs). The company has been pursuing an aggressive acquisition strategy over the last few years and it concluded two major acquisitions in the year ended March 2008 including Unza and Infocrossing for a cumulative value of close to $900 million. As of 31 March 2008, Wipro had cash and bank balance Rs 3,927 crore.

Reliance Communications (RCom), the country’s second largest telecom services provider in terms of market capitalisation slumped 2.85% to Rs 474. RCom’s proposed merger deal with South Africa based global operator, MTN is reportedly expected to close by first week of July 2008 with RCom likely to acquire 40% stake in the merged entity.

India’s leading pharma company in terms of sales, Ranbaxy Laboratories gained 2.44% to Rs 526 on 14.58 lakh shares. It was the top gainer from Sensex pack.

Bharat Heavy Electricals (Bhel), the country’s largest state-run engineering company in terms of order book, gained 2.10% to Rs 1390. As per reports, Bhel has paid 42.8% higher advance tax at Rs 300 crore in the first installment of this financial year over the corresponding period in the previous year.

India’s dedicated housing finance company Housing Development Finance Corporation advanced 2.05% to Rs 2260. The stock moved in a range of Rs 2182 and Rs 2300 in the day.

Reliance Capital was the top traded counter on BSE with turnover of Rs 454.33 crore followed by Reliance Industries (Rs 341.56 crore), Tata Steel (Rs 239.07 crore), Reliance Communication (Rs 184.91 crore), and Anu’s Labs (Rs 177.87 crore), in that order.

Reliance Natural Resources topped the volumes charts on BSE clocking volumes of 1.39 crore shares followed by IFC (1.32 crore shares), Reliance Petroleum (1.03 crore shares), Chambal Fertislisers & Chemicals (99.16 lakh shares) and Ispat Industries (84.14 lakh shares), in that order.

Among side counters, Simplex Projects (down 13.88% to Rs 184.30), ANG Auto (down 13.81% to Rs 68), Niraj cement & Structurals (down 12.03% to Rs 165.20), Spice Communications (down 11.48% to Rs 53.20), Educomp Solutions (down 11.20% tp Rs 2938), slumped

Indian Hotels Company declined 4.36% to Rs 88.90 on reporting 0.3% rise in net profit to Rs 134.88 crore on 10.4% rise in sales to Rs 557.63 crore in Q4 March 2008 over Q4 March 2007. The company announced result after trading hours on Monday, 23 June 2008.

Jetking Infotrain soared 12.73% to Rs 310 after the company said its board will meet on 30 June 2008 to consider issue of bonus shares. The company made this announcement during trading hours today, 24 June 2007.

Orchid Chemicals & Pharmaceuticals fell 4.81% to Rs 225.50 after the company said it had secured Canadian regulatory approval to sell a combination antibiotic injection in that country. The company made this announcement during trading hours today, 24 June 2007.

Tech Mahindra slipped 2.21% to Rs 745 despite signing a contract with Telecom New Zealand for program management and systems integration for the latter's retail business.

Tata Power Company declined 6.93% to Rs 1110 despite reporting 24.8% rise in net profit to Rs 869.90 crore in the year ended March 2008 over the year ended March 2007 The company announced the results after trading hours on Monday, 23 June 2007.

GAIL India tumbled 5.42% to Rs 357.90, off sharply from day’s high of Rs 394, after its board recommended issue of bonus shares in the ratio of one equity share for every two shares held. The company made this announcement before trading hours today, 24 June 2007.

European markets, which opened after Indian market, slipped into the red after firm opening. Key benchmark indices in United Kingdom, France and Germany were down by between 1.18% and 1.48%.

Crude oil prices continue to hold firm. Crude for August delivery was up 20 cents at $136.94 a barrel today, 24 June 2008 amid fears of Nigerian supply disruptions and tensions between Israel and Iran. It had hit a record high of $139.89 on 16 June 2008. Oil price has risen about 40% in this calendar year so far.

Asian markets, which opened before Indian market, were trading lower except China's Shanghai Composite which rose 1.50% at 2,801.72. Japan's Nikkei (down 0.06% at 13,849.56), Hong Kong's Hang Seng (down 1.14% at 22,456.02), Taiwan's Taiwan Weighted (down 1.76% at 7,738.12), Singapore's Straits Times (down 0.57% at 2,962.20) and South Korea's Seoul Composite (down 0.28% at 1,710.84) slipped.

US markets lost some ground yesterday, 23 June 2008, sending financial shares to their lowest level in five years, on a deteriorating outlook for bank earnings. The Dow Jones industrial average dropped 0.33 points, or less than 0.01%, to 11,842.36. The Standard & Poor's 500 index gained 0.07 points, or 0.01%, to 1,318.00, and the Nasdaq composite index lost 20.35 points, or 0.85%, to 2,385.74.

Back home, volatility is expected to remain high on the Indian bourses in the near term as derivatives contracts for June series are set to expire on Thursday, 26 June 2008. As per reports, the marketwide rollover of positions from June 2008 series to July 2008 series stood at 26.50% while that of Nifty was 31%, as on Friday, 20 June 2008.

Market seen opening lower

Local market is expected to open lower tracking lower Asian markets. Crude oil's relentless rise will continue to weigh on sentiment.

Volatility is expected to remain high in the near term as derivatives contracts for June series are set to expire on Thursday, 26 June 2008. As per reports, the marketwide rollover of positions from June 2008 series to July 2008 series stood at 26.50% while that of Nifty was 31%, as on Friday, 20 June 2008.

Meanwhile, as per reports, advance tax collections increased 27% to Rs 20,700 crore over the same period last year, as of 20 June 2008. Advance taxes are paid in four instalments, in June, September, December and March. Usually, the first instalment is 15% of the total tax estimated to be paid for the whole fiscal.

Asian markets were trading lower today, 24 June 2008. China's Shanghai Composite was down 0.03% at 2,760.71, Japan's Nikkei fell 0.05% or 6.43 points at 13,851.04, Hong Kong's Hang Seng lost 0.20% or 45.95 points at 22,669.01, Taiwan's Taiwan Weighted declined 0.87% or 68.67 points at 7,807.82, Singapore's Straits Times dropped 0.11% or 3.37 points at 2,975.78 and South Korea's Seoul Composite slipped 0.53% or 9.06 points at 1,706.53

US markets lost some ground yesterday, 23 June 2008, sending financial shares to their lowest level in five years, on a deteriorating outlook for bank earnings. The Dow Jones industrial average dropped 0.33 points, or less than 0.01%, to 11,842.36. The Standard & Poor's 500 index gained 0.07 points, or 0.01%, to 1,318.00, and the Nasdaq composite index lost 20.35 points, or 0.85%, to 2,385.74.

Back home, Indian stocks suffered losses for the fourth straight session yesterday, 23 June 20008, to settle at 10-month low on sustained selling pressure throughout the day due to concerns of further policy tightening by the Reserve Bank of India with inflation reaching 13-year high and political uncertainty.

The 30-share BSE Sensex lost 277.97 points or 1.91% at 14,293.32 and the broader based S&P CNX Nifty was down 81.15 points or 1.87% to 4266.40, on that day.

The barometer index has now shaved 5,993.67 points or 29.54% in the calendar year 2008 so far from its close of 20286.99 on 31 December 2008. It is down 6,913.45 points or 32.60% from its all time high of 21206.77 struck on 10 January 2008.

As per provisional data, foreign funds sold shares worth a net Rs 665.56 crore and domestic mutual funds bought shares worth a net Rs 91.75 crore yesterday, 23 June 2008.

Foreign institutional investors (FIIs) were net sellers of Rs 166.24 crore in the futures & options segment yesterday, 21 June 2008. They were net buyers of index futures to the tune of Rs 876.86 crore and sold index options worth Rs 864.33 crore. They were net sellers of stock futures to the tune of Rs 165.96 crore and sold stock options worth Rs 12.81 crore.

Crude for August delivery was up 20 cents at $136.94 a barrel today, 24 June 2008 amid fears of Nigerian supply disruptions and tensions between Israel and Iran. It had hit a record high of $139.89 on 16 June 2008.

Morning Notes - June 24 2008

Morning Notes - June 24 2008

Pre Session Commentary - June 24 2008

The Indian Market is expected to have negative opening on the back of weak global cues as Asian markets are trading lower and US market ended mixed. On Monday, the Indian market closed in red backed by selling across the ground. It opened on downbeat note and covered with black clouds throughout the trading session due to weak global markets along with high oil prices, rising inflation concern and the possibility of it resulting in some monetary tightening measures from the Reserve Bank of India, all contributed to the negative sentiments in the market. Nuke Deal was also the concern for the market. From the sectoral front, metal, capital goods, oil & gas, bank and reality stocks were the major victims of the negative sentiment, while IT stocks were on limelight as maintained to close on positive zone. The BSE Sensex closed lower by 277.97 points at 14,293.82 and NSE Nifty ended down by 81.15 points at 4,266.40. The BSE Mid Cap and BSE Small Cap ended with a deep cut of more than 3% each. We expect bearish market during the trading session.

US markets closed mixed on Monday. Stocks in New York opened on the upbeat note, but the early advance was short-lived, as investors ran away from the financials and Oil prices rose above $136 a barrel on Monday after major energy producers ruled out further output. Bank of America reduced the income estimates for brokerages and Goldman Sachs advised selling bank shares as credit losses stay behind into 2009. American International Group, the largest insurer, dropped to its lowest since 1997, also added to the negative attitude.

The S&P 500 closed marginally higher by 0.07 points at 1,318.00, while NASDAQ ended down by 20.35 points to close at 2,385.74 and Dow Jones Industrial Average (DJIA) dropped by 0.33 points to close at 11,842.36.

Indian ADRs ended mixed. In technology sector, Patni Computers ended up by (1.99%) along with Satyam by (1.79%), Infosys by (1.56%) and Wipro by (0.16%). In banking sector, HDFC bank and ICICI bank decreased by (1.64%) and (1.25%) respectively. In telecommunication sector, Tata Communication and MTNL reduced by (3.64%) and (3.01%). Sterlite industries declined (3.72%).

Today the major stock markets in Asia are trading in negative. Taiwan Weighted is trading lower by 68.67 points at 7,807.82 along with Hang Seng index trading down by 45.95 points at 22,669.01 and Japan’s Nikkei trading at 13,851.04 advanced by 6.43 points.

The FIIs on Monday stood as net seller in equity and debt. The gross equity purchased was Rs2,501.50 Crore and the gross debt purchased was Rs0.00 Crore while the gross equity sold stood at Rs3,454.00 Crore and gross debt sold stood at Rs56.00 Crore. Therefore, the net investment of equity reported was (Rs952.50) Crore and net debt was Rs56.00 Crore.

Today, Nifty has support at 4,170 and resistance at 4,332 and BSE Sensex has support at 13,920 and resistance at 14,492.

Trading Calls - June 24 2008

Nifty (4266) Sup 4210 Res 4350

Buy Sasken Comm (142)
SL 139 Target 150, 152

Buy HDFC (2213)
SL 2195 Target 2255, 2265

Buy NDTV (419)
SL 414 Target 429, 434

Sell Maruti (688)
SL 694 Target 678, 674

Sell IVRCL Infra (328)
SL 333 Target 318, 315

Morning Call - June 24 2008

Market Grape Wine :

In House :

Nifty at a support of 4212 and 4156 with resistance at 4325 and 4390 levels.

Cash : Buy ZEE above 223.75 TGT 232 with S/L 219.

Cash : Buy BPCL above 268.50 TGT 277 with S/L 263.

Future : Buy WIPRO above 476 TGT 488 with S/L 470.

Future : buy LIC HOUSING above 272 TGT 285 with S/L 265

Out House:

Markets at a support of 14114 & 14214 resistance at 14474 & 14591 levels .

Buy : LT & Gail at dips

Buy : Sunpharma & Glenamark at dips

Buy : Infy & satyam

Buy : ONGC

Buy : ITC

Dark Horse : Wipro , HLL , LT , INFY & ITC

Forget cherries, pick some bigger fruits

He that climbs the tall tree has won right to the fruit.

Any fall in the market often prompts one to do cherry picking. But given the continuous fall for almost half a year, investors have the luxury of choosing and picking low hanging fruits without worrying about climbing high. Delicious valuations did we hear! Use lower levels to add the large caps only even though the mid-cap and smaller stocks may have fallen more.

After a partial rebound from lower levels yesterday, we expect some bounce today. Barring European markets, which tumbled on bad set of economic data, most global markets ended flat to slightly negative. We see a cautious to perhaps a slightly higher opening in our market. Though a short-squeeze we predicted yesterday didn't fully materialise, the F&O segment did see some short covering. The Nifty June futures closed with a slight premium as against a discount of a few points. The open interest too declined substantially.

These factors point to short covering by the bears. More can be expected over the next couple days ahead of Thursday's settlement day. We will also have the outcome of the Fed meeting, where the US central bank is likely to keep rates steady while stressing on containing inflation.

On the political front, there hasn't been any significant new development, though some reports suggest that the UPA and Left may agree to some comprise formula to avoid early polls. A truce between the Congress and the red brigade could come as a welcome breather.

On the whole, the bulls may well have a good day in office after a four-day drubbing during which the Sensex has lost some 1,400 points. Much will hinge on global markets and F&O trends.

FIIs were net sellers of Rs6.66bn (provisional) in the cash segment on Monday while the local institutions poured in Rs917.5mn. In the F&O segment, foreign funds were net sellers of Rs1.66bn.

On Friday, FIIs were net sellers of Rs9.53bn in the cash segment. With this, they have pulled out almost $5.9bn from the Indian market this year.

Results Today: Amara Raja, Apollo Hospitals, Classic Diamond, Cyber Media, IndusInd Bank, Jet Airways, Patel Engineering, PSL, Ramsarup Industries, Sadbhav Engineering, Tata Chemicals and TV Today.

Shares of Rane Engine Valve Ltd. will get re-listed today.

US stock indices closed mixed on Monday. The Nasdaq slid while the broader market was mixed as investors grappled with the ongoing troubles for the financial and automaker sectors and high oil prices.

After the close, express delivery firm UPA cut its second-quarter earnings forecast, due to slower economic growth and higher fuel costs. Shares slumped more than 4% in after-hours trading.

The Dow Jones Industrial Average finished flat at 11,842.36, with 17 of its 30 components trading lower. The S&P 500 closed at 1,318, with the financial sector suffering the most, off nearly 3%, followed by consumer discretionary, down 2%.

The technology-laden Nasdaq Composite fell 20.35 points to 2,385.74.

A stronger dollar and two major deals helped stocks rise in the early going. But the undertone soon turned negative as concerns about bank and automakers resurfaced, giving investors a reason to stay cautious.

Market breadth was negative. On the New York Stock Exchange, losers beat winners two to one on volume of 1.08bn shares. On the Nasdaq, losers beat winners by over two to one on volume of 1.93bn shares.

The financial sector was hurt by reports of job cuts at investment banking divisions of Citigroup and Goldman Sachs, besides fresh downgrades of the financial and consumer discretionary sectors.

Banc of America Securities lowered second-quarter estimates for both Merrill Lynch and UBS, saying that mortgage-related exposures are likely to weigh on the bottomlines of both investment firms.

Oil prices were volatile as investors weighed a possible disruption in Nigerian supply with news that Saudi Arabia will boost daily output to 9.7 million barrels from the current 9 million barrels. August crude closed at $136.74 a barrel in New York, up $1.38, or 1%, for the session.

The national average price for a gallon of regular unleaded gas fell to $4.072 from $4.073 the previous day, according to AAA.

Meanwhile, on Capitol Hill, four energy analysts told Congress the price of gasoline could fall to about $2 a gallon within 30 days of passage of a law to limit speculation in energy-futures markets.

The Federal Open Markets Committee (FOMC) will gather today for a two-day meeting. Federal Reserve Chairman Ben Bernanke and is colleagues are widely expected to hold rates at 2%, amid mounting inflation pressures.

Tuesday also brings the June reading on consumer confidence from the Conference Board. The index is expected to have dipped to 56.0 from 57.2 in May.

Citi is about halfway through previously announced job cuts in its investment banking unit, according to reports, with the bulk of those cuts expected this week. The No.1 US bank had said earlier this year that it will cut 10% of the 65,000 employees in its investment banking unit. That news pressured other financial stocks.

The auto sector too remained under pressure. GM shares lost 6.4%, after nearing a 33-year low, on nagging worries about the industry's financial health. Separately, GM said it will offer 0% financing for 72 months on certain cars and trucks, as a means of unloading select 2008 vehicles. The company also announced prices increases on some 2009 models.

In related development S&P said it will probably cut GM, Ford and Chrysler's debt ratings and the debt ratings of the companies' finance units. Also, Moody's said Ford and Chrysler are in danger of being downgraded - a warning it already gave about GM earlier this year.

Republic Services, a disposal company, said it will buy rival Allied Waste Industries in a $6.1bn stock deal. Farm-products company Bunge is buying Corn Products for $4.8bn in stock and the assumption of debt.

In currency trading, the dollar gained versus the euro and the yen. In the bond market, Treasury prices rose modestly, lowering the yield on the benchmark 10-year note to 4.16% from 4.17% late on Friday. COMEX gold for August delivery fell $16.50 to settle at $887.20 an ounce.

European shares finished lower, as the outlook for a sluggish eurozone economy dragged on shares of construction firms and banks. The pan-European Dow Jones Stoxx 600 index fell 1.7% to 295.08, breaking below the 300 level for the second time in two days. UK's FTSE 100 closed down 1.5% at 5,620.80, while Germany's DAX 30 fell 2.1% to 6,578.44 and the French CAC-40 dropped 1.8% to 4,509.27.

In the emerging markets, the Bovespa in Brazil was nearly flat at 64,640 while the IPC index in Mexico fell 0.2% to 29,464. The RTS index in Russia slumped 1.8% to 2342 and the ISE National-30 index in Turkey dropped 0.6% to 45,739.

Looking for bounce

Markets continued their southward journey starting off the weak with a negative bias. Selling pressure, fueled by global weakness saw the Indian bourses take a nosedive in the morning trades, dragging the Nifty below the 4,300 level. However, in the mid-afternoon trades bulls managed to partially erase early losses, with the benchmark index recovering over 300 points and the Nifty managing to recoup over 90 points. But, the momentum was short lived as bears were back with a sudden bout of selling in the index heavyweights like Reliance Industries, Infosys and Tata Steel.

Among the 50-Nifty, 38 stocks ended in negative terrain and only 11 stocks ended in green. Finally, the BSE benchmark Sensex lost 277 points to close at 14,293 and the Nifty index lost 81 points to close at 4,225.

Reliance Industries, the index heavyweight fell to its lowest since September 12. The stock dropped below the Rs2,000 mark in the morning trades, losing over 3.5% to close at Rs2022. There were reports stating that, the company’s USA arm would invest US$215mn and create 200 new jobs at a newly acquired polyester plant in the US.

The scrip touched an intra-day high of Rs2083 and a low of Rs1984 and recorded volumes of over 16,00,000 shares on BSE.

Maharashtra Seamless was down by a 2% to Rs294. The company announced that they secured order worth RsUS$45mn. The scrip touched an intra-day high of Rs297 and a low of Rs282 and recorded volumes of over 6,000 shares on BSE.

DLF slipped 2.5 percent to close at Rs446. According to reports, the company will be getting around 5,000 acres near Greater Noida at less than market rate under the Taj Expressway Industrial Development Authority’s (TEA) scheme.

TEA will transfer the land to realty developers at acquisition cost from the farmers, which is likely to be much cheaper than the market rate developers have been paying privately. The scrip touched an intra-day high of Rs463 and a low of Rs438 and recorded volumes of over 11,00,000 shares on BSE.

Sterlite Technologies dropped by 5% to Rs198. The company announced two major contract wins with Indian telecoms giant BSNL. The contracts, which are for fiber optic cable and copper telecoms cable, respectively, are worth a total of Rs1.07bn to Sterlite Technologies. The scrip touched an intra-day high of Rs210 and a low of Rs197 and recorded volumes of over 64,000 shares on BSE.

Sayaji Hotels plunged by over 9% to Rs61.30. The company announced that it opened its seventh restaurant on June 21, 2008 at J P Nagar, Bangalore. The company is inaugurating the new restaurant at 67, Sarkki Industrial Layout, J P Nagar, Phase 3, Bangalore, with 168 covers of sitting capacity.

The seventh restaurant is being opened by the wholly owned subsidiary company Barbeque-Nation Hospitality Ltd and currently operating six restaurants at Jaipur, New Delhi, Lucknow, Chandigarh, Chennai and Ahmedabad. The scrip touched an intra-day high of Rs67 and a low of Rs61 and recorded volumes of over 17,000 shares on BSE.

Petronet LNG ended 3.2% to lower to close at Rs59. The company is taking participating interests in gas assets in Australia. The company is in talks with European and American firms with acreages in Australia. It is looking at gas fields with likely in-place reserves of 8-15 trillion cubic ft (TCF), according to the report.

PLL is also looking at coal bed methane (CBM) projects in Australia. The company plans to source around 7.5-10 million tonnes per annum of LNG. The scrip touched an intra-day high of Rs61 and a low of Rs59 and recorded volumes of over 4,00,000 shares on BSE.

Corporate News

GMR will replace ONGC in Rs310bn Kakinada refinery and petrochemical project in Andhra Pradesh. (BS)
Tata Power plans to invest Rs250bn to boost its capacity by six-fold to 12,800mw by 2013. (BS)
GIC and Temasek may be allowed to pick up 10% stake each in ICICI Bank. (FE)
GAIL will issue one bonus share for every two equity shares held by its shareholders. (BS)
Wipro has raised Rs14bn through external borrowings. (BS)
Tech Mahindra has bagged a US$24mn engagement to assist Telecom New Zealand overhaul its retail business. (BL)
SBI is likely to raise its PLR and is awaiting fresh monetary action from the RBI to finalise the extent of increase. (BS)
Reliance Industries USA has acquired a polyester manufacturing facility in North Carolina for about US$12.2mn from Unifi Kinston and plans to invest US$215mn in that company. (ET)
Tata Motors has decided to absorb a significant portion of the cost increase of its Nano vendors. (ET)
Reliance Globalcom, the global arm of RCOM is entering into an alliance with a VOIP exchange in the US. (DNA)
M&M’s used-car business, First Choice is likely to sell 10% stake to Phi Advisors for ~Rs800mn. (ET)
Nalco will resume full production from June 25 after a strike cut the supply of coal to its Orissa power station. (BS)
Binani Cement has lined up capex plans of Rs16bn to take its global capacity to 13mmtpa by 2011-12. (BS)
Binani Cement is close to acquiring an African cement company for ~US$100mn. (ET)
Kingfisher Airlines and Deccan have slashed over 10% of their total daily flights. (BL)
Saint-Gobain Glass India plans to invest Rs10bn on a 0.3mn ton a year greenfield float glass making plant in Bhiwadi in Rajasthan. (BL)
ONGC Tripura Power Co, a unit of ONGC has awarded a Rs22.07bn order to a consortium of BHEL and GE for its 720 MW plant in Tripura. (ET)
Unichem has received a certification from the European Directorate for the Quality of Medicines and Healthcare for its active pharmaceutical ingredients plant in Roha, Maharashtra. (BL)
Unichem Laboratories has got approval from the US Food and Drug Administration for its formulations plant in the northern state of Uttar Pradesh. (ET)
JK Tyre has acquired 100% shares of Tornel, the Mexican Tyre company, along with its subsidiaries, for Rs2.7bn. (ET)
JK Tyre & Industries will raise prices of tyres by August. (ET)
Lupin has entered into a promotion agreement with Ascend Therapeutics Inc to promote its Suprax 400mg tablets in the US. (DNA)
The Parikhs, co-promoters of Zandu Pharmaceuticals have sent a letter to SEBI to thwart Emami Group’s attempt to take over the company. (ET)
Reliance Brands have entered into a 50:50 JV with Italy’s luxury sportswear brand Paul & Shark. (ET)
Alok Industries will invest Rs400mn in expanding its retail venture in FY09. (BL)
Religare Enterprises plans invest over Rs1bn for setting up 200 retail stores in the personal finance space under the Finmart brand over the next one year. (ET)
Pyramid Saimira Group, Chairman and MD P. S. Saminathan is considering an open offer to consolidate his stake in the company. (Mint)
Vodafone Essar has secured Rs70bn loan from lenders led by State Bank of India. (DNA)
SpiceJet plans to cut 20 flights from July 1. (BL)

Economic News

Around Rs80bn worth of real estate projects covering over 40mn square feet are facing delays. (BS)
DoT has asked TRAI to review termination charges. (BS)
Advance tax collection for the June 15 installment is expected to have gone up 30% on a yoy basis. (BL)
The June 30 bid submission date for the seventh round of NELP will not be deferred. (BL)
Indian corporate houses have raised a record more than Rs1trn by issuing corporate bonds during FY08. (Mint)
The DoT committee, formed to recommend ways to allocate and price 2G spectrum for mobile services, is likely to hold its first meeting in the first week of July. (ET)
The Competition Commission of India has asked SEBI to make compliance with competition law mandatory for listing on stock exchanges. (ET)
Government has held discussions with Nigeria to acquire more oil and gas fields. (FE)
RBI has decided that, for the limited purpose of valuation, all special securities issue by GoI, directly to the beneficiary entities, which do not carry SLR status may be valued at a spread of 25bps above the corresponding yield on GoI securities. (FE)

KSK Energy Ventures IPO Analysis

KSK Energy Ventures (KEVL) develops and operates power generation projects through various special purpose vehicles (SPVs). It is a step-down subsidiary of KSK Power Venture Plc, listed on the London Stock Exchange. Through its wholly owned subsidiary KSK Energy of Mauritius, KSK Power Venture Plc will hold a 55.24% stake in post-issue equity capital (pre-issue 61.39%)of KEVL. S. Kishore and K.A. Sastry are the promoters of the company.

Currently , KEVL operates three power projects with an aggregate capacity of around 144 MW. It has two projects with an aggregate power generation capacity of 675 MW under construction. The aggregate generation capacity of projects in the pipeline is 8,318 MW.

Of the three operational power plants, two are dedicated coal-based captive power plants of 43 MW each in Chattisgarh and Andhra Pradesh. The Chattisgarh power plant is owned by Arasmeta Captive Power Company, with KEVL owning a 51% stake, and is dedicated to the captive power requirement of Lafarge Cements. The Andhra Pradesh plant is owned by Sitapuram Power, with KEVL’s stake at 49%, and is dedicated to the captive power needs of Zuari Cements. The third operational power plant,, Sai Regency Power Corporation, is a gas-based combined cycle group captive power plant in Tamil Nadu, with KEVL holding a 73.92% stake ,and meets the captive power requirement of companies such as Chemplast Sanmar, Lakshmi Mills, Orchid Pharma, and Elforge. The Arasmeta, Sai Regency and Sitapuram power projects were synchronized with the grid on May 2006, February 2007 and July 2007, respectively.

Of the projects under development, a lignite-based power project with an generation capacity of 135 MW in Rajasthan is scheduled to be operational by October 2008. Another 540-MW coal-based power project at Warora in Chattisgarh is likely to be operational by December 20’09. KEVL has secured debt financing and intends to commence construction for the three projects with an aggregate generation capacity of 1,973 MW. The company has plans for three more projects with an aggregate capacity of 6,345 MW.

In January 2008, KEVL divested its stake in the SPVs of the three operating power companies, under the restructuring plan between the promoter groups of the company and LB India Holdings Mauritius I, to the ‘Small is Beatutiful Fund’. Besides this divestment, the company picked up 100% of the shareholding in KSK Electricity Financing India, previously a 51:49 joint venture between the company and LB India. It has divested its stake fully in RVK Energy (20 MW), Kasargod Power (20 MW) and Coramandel Power. The stakes in these erstwhile subsidiaries along with investment in Athena Projects were transferred to promoter group company KSK Energy Company, in which parent Mauritius-based KSK Energy holds 100% stake.

KEVL is tapping the capital market with an IPO to facilitate equity infusion in Wardha Power Company to meet the equity component of the 1,800-MW Wardha Chattisgarh power project and to meet general corporate expenses.


On completion of all planned projects, there will be a fairly diversified plant mix of geography and fuel supply. The plants will be spread over seven states, with eight coal-based plants, one lignite-based plant, one natural gas-based plant and three run-of-the-river hydroelectric plants.


Power generation capacity, operational or under construction, amounts to just 819 MW of the proposed power generation capacity of 9,137 MW by 2013. Yet to appoint engineering, procurement and construction (EPC) contractors for the balance 8,318-MW power generation capacity. The supply constraints at the equipment as well as the execution contractors side expose it to high level of execution risk. With rising commodity prices, escalation in project cost can also be significantly higher.

Lacks experience in developing and operation of power plants of higher capacity as well as the magnitude proposed. Current operational projects and projects under construction are thermal power units and execution of hydel power projects, which are more complex with long gestation periods, needs to be seen.

Yet to sign a definite fuel supply agreement (FSA) for the 540-MW Wardha Warora Power Project in Maharashtra, expected to be operational by December 2009. Similarly, still in negotiating for fuel supply for the 43-MW Arsmeta expansion project. Yet to sign definite FSA for three 1,800-MW coal-based power projects (one at Chattisgarh and two in Orissa) even though an MOU has been signed.

Still to finalise the power purchase agreement and fuel supply for generation capacity of 8,500 MW.

Of the three operational power projects, the Sitapuram Power SPV continues to be in red with net loss of Rs 1.91 crore in the year ended March 2008 (FY 2008). A shareholder agreement with Zuari Cements relating to Sitapuram Power SPV contains an onerous provision giving option to ZCL to pick up the entire 49% stake in the SPV after the third anniversary ( 1 March 2011) of commercial operation of the Sitapuram power plant .

Proposes to add 8,993 MW of power generation capacity by 2013. The estimated infusion of equity into SPVs will be a staggering Rs 8000 crore on the assumption that all the proposed projects will be funded through a debt: equity mix of 70:30. Currently, only about Rs 883 crore is to be raised by the IPO. So there will be significant equity dilutions in future.

Certain SPVs will pay project development and support fees to group company KSK Energy Company .

The power purchase agreement for captive power plants provides for fixed rates and have limited passthrough.

An affiliate of Lehman Brothers will hold 28.41% of the equity capital after the IPO. Lehman has been in the news for the severe subprime problems it is facing.


Due to the benefits of commissioning two new power projects, the restated consolidated net sales of KEVL were up 208% to Rs 239.13 crore in the fiscal ended March 2008 (FY 2008). Net profit rose 476% to Rs 108.65 crore. The figures for FY 2008 are not comparable with those of FY 2007 as the company has divested three of its operating power plants to a group company under the restructuring plan implemented n January 20’08. Further, the sales were boosted by project-development fees of Rs 23.36 crore and power-arrangement income of Rs 23 crore. On post-IPO equity of Rs 346.11 crore, the EPS for FY 2008 works out to Rs 3.3. The P/E is 72.7-77.3 at the price band of Rs 240-Rs 255.

KEVL will have the full benefit of the operation of Sitapuram plant in FY 2009. And with the 135-MW lignite power project getting commissioned by December 2008, the company will get significant revenue upside in FY 2010 as well.

With 144-MW (current) power generation capacity, KSK Energy Ventures will have a market capitalisation of Rs 8826 crore at the higher price band, while an equivalent payer like GIPCL has a market cap of Rs 1305 crore with higher 555-MW power generation capacity. Having learnt the lessons, stock markets are unlikely to give huge market capitalisation to companies like KEVL just based on their lofty plans.

Bullion end mixed

Precious metals register strong gains for the week

Bullion metals ended with losses today, Monday, 23 June, 2008 as the dollar rallied. Silver prices also fell today.

Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, a lower dollar pushes up precious metal prices as their demand lessens as it becomes cheaper for traders holding other currencies.

Comex Gold for August delivery fell $16.5 (1.5%) to close at $887.2 ounce on the New York Mercantile Exchange. It fell to a low of $879 during intra day trading. With this, gold gave up some of its last week’s gains. Last week, gold prices ended higher by $30.6 (3.5%). Last month, in May, it ended with a gain of higher by $22.5 (2.5%). On 17 March, 2008 prices had skyrocketed to a high of $1,034/ounce. But prices have dropped since then.

This year, gold prices have gained 6.5% till date against a 6% drop for the dollar against the euro. Before May, for April, prices closed lower by 6.3%. For first quarter prices gained 10.7%. In January, prices gained 11%, the highest monthly gain since April 2006. For February, it gained 6%. But in March, prices succumbed and fell by 5.5%.

On Monday, Comex silver futures for July delivery fell 60.7 cents (3.5%) to $16.79 an ounce. Last week, silver has gained 5%. Silver has gained 13.5% in 2008 till date.

Silver prices ended the month of May 2008 with a gain of 2.7%. For April, it closed lower by 5.5%. Silver had gained 16% in Q1. In January this year itself, prices climbed 14%. In February, it gained another 15%. For March, it ended lower by 13%. The metal had climbed 16% in FY 2007. The metal also has gained for seven straight years.

At the currency markets on Monday, the dollar index which measures the greenback against a basket of trading partners, was at 73.47, compared with 73.05 late Friday. The euro lost ground after closely tracked gauges of German economic sentiment and euro-zone activity weakened more than expected in June.

Since last September, Fed has axed interest rates seven times and brought it down to 2%. On the other hand, the ECB has kept rates unchanged at 4% since June, 2007.

In the crude market on Monday, crude-oil futures closed with a gain of more than $1 per barrel, with energy traders showing disappointment over Saudi Arabia's latest move to increase production as concerns over output in Nigeria continued to grow. Crude for August delivery closed at $136.74 a barrel on the New York Mercantile Exchange, up $1.38, or 1%. It traded as high as $137.85 during the Nymex session.

Gold had witnessed the greatest annual gain in twenty eight years by gaining $200/ounce (31%) in FY 2007 as lower interest rates had sent the dollar tumbling, and crude-oil prices rose to a record. In 2006, silver had jumped 46% while gold gained 23%.

At the MCX, gold prices for August delivery closed lower by Rs 217 (1.7%) at Rs 12,309 per 10 grams. Prices rose to a high of Rs 12,623 per 10 grams and fell to a low of Rs 12,215 per 10 grams during the day’s trading.

At the MCX, silver prices for July delivery closed Rs 749 (3.1%) lower at Rs 23,744/Kg. Prices opened at Rs 24,530/kg and fell to a low of Rs 23,513/Kg during the day’s trading.

Crude ends modestly higher

Price crawls up on decision from Saudi Arabia

Crude futures closed higher by more than $1 on Monday, 23 June, 2008. Prices rose in reaction to Saudi Arabia’s weekend decision to increase production for next month. Traders were infact disappointed with the same.

Crude-oil futures for light sweet crude for August delivery today closed at $136.74/barrel (higher by $1.38/barrel or 1%) on the New York Mercantile Exchange. It traded as high as $137.85 during intra day trading. Last week, it closed lower by 0.2%. Prices are 94% higher than a year ago. For the year, crude is up by 38% till date.

At a meeting of oil producers and consumers, during the weekend, on Sunday, Saudi Arabia said it would raise its daily production by 200,000 barrels in July. That's on top of the increase of 300,000 barrels a day announced in May.

At the currency markets on Monday, the dollar index which measures the greenback against a basket of trading partners, was at 73.47, compared with 73.05 late Friday. The euro lost ground after closely tracked gauges of German economic sentiment and euro-zone activity weakened more than expected in June.

Natural-gas prices headed higher as well. July natural gas finished up 20.9 cents, or 1.6%, at $13.203 per million British thermal units.

Against this backdrop, prices for petroleum products climbed along with crude on the futures markets. July reformulated gasoline climbed by 1.6 cents to close at $3.4551 a gallon, while July heating oil closed at $3.7964 a gallon, up 2.5 cents.

At the MCX, crude oil for July delivery closed at Rs 5,883/barrel, higher by Rs 104 (1.8%) against previous day’s close. Natural gas for June delivery closed at Rs 571.6/mmbtu, higher by Rs 8.9/mmbtu (1.6%).

Today's Pick -Tata Chemicals

We recommend a sell in a Tata Chemicals from a short-term perspective. It is evident from the charts that it was on a medium-term uptrend between March 2008 and May 2008 (from a low of Rs 255 to a high of Rs 440). However, the stock reversed direction and started experiencing selling pressure, after touching an all-time high of Rs 440. We notice a head and shoulders pattern (a top reversal pattern), spanning the last two months with neckline at Rs 333. On June 23, the stock breached this neckline and tumbled 6 per cent. The daily relative strength index has entered the bearish zone. The daily moving average convergence and divergence has entered the negative region too. We are bearish on the stock in the short-term. We expect the stock’s decline to prolong until it hits our price target of Rs 290 in the approaching trading sessions. Traders with short-term perspective can sell the stock while maintaining stop-loss at Rs 341.

via BL

Advance tax payment at 30%

The advance tax pay-out of Corporate India is estimated to have recorded a 30-per cent increase for the June 15 instalment on a year-on-year basis, going by the data available with the Revenue department.

For the June 15 instalment in 2007, the Income Tax department had mopped-up advance tax of about Rs 19,000-20,000 crore from the corporate sector.

ONGC continued to hold the top position in the Top Ten advance taxpayers’ league which has GAIL and BSNL as new entrants.

In 2007-08, while GAIL was placed in the 18th position in 2007-08, BSNL did not figure in the top 50 , according to sources in the Revenue department.
5-year period ends

BSNL’s advance tax pay-out for June 15 instalment this year stood at Rs 312 crore, nearly three times the Rs 105 crore paid in June last year. The main reason for increased advance tax pay-out is the expiry of Section 80-IA benefit last fiscal.

“Profitability is not the main issue. Tax incidence is there because Section 80-IA benefits expired last year. The five-year period has been completed. So we are paying more advance tax now. To be on the safer side and avoid penalties, we have in fact paid a little more to the tax department,” Mr S.D. Saxena, Director (Finance), BSNL, told Business Line.
PSEs dominate

The public sector dominance in the top ten advance taxpayers’ league continues even after some churn in the latest edition.

The private sector, which has started to expand its footprints abroad, had a somewhat subdued presence, with only three firms — Reliance Industries, Tata Steel and ICICI Bank — figuring in the Top Ten league.
Why subdued presence

One of the plausible reasons for such subdued presence of the private sector could be income-tax exemptions given for units in sectors such as information technology and telecom.

Analysts reckon that income-tax pay-outs of firms in these sectors may increase in the next few years after the termination of the sun-set clause specified period.

Reliance Industries and Tata Steel were the only private sector companies to figure in the top ten for 2007-08. In 2006-07, Tata Steel was the only private sector company to find a place in such a listing.

ICICI Bank, which did not find a place in the final list of top ten advance taxpayers’ for 2007-08, has returned to the top ten list in the June 15 instalment with an advance tax payment of Rs 340 crore (Rs 250 crore).
IOC’s burden

Indian Oil Corporation (IOC), which figured among the top five advance taxpayers’ in 2007-08, does not find a place in the list this year, mainly on account of its inability to undertake price adjustments following spurt in global crude oil prices.

Oil marketing companies such as IOC are facing the brunt of skyrocketing prices of crude oil as petroleum products such as auto fuels and cooking gas continue to be administered.

The other entities that have moved out of the Top Ten league in the June 15 instalment this fiscal are Bharat Heavy Electricals Ltd (BHEL) and National Thermal Power Corporation (NTPC).

While BHEL has paid advance tax of Rs 300 crore (Rs 210 crore) , NTPC pay-out has declined to Rs 188 crore (Rs 202 crore).

Corporates are required to fulfil their advance tax obligations in a financial year over four instalments — in June, September, December and March.

The Centre’s direct tax revenues have been robust this fiscal, with collections recording a 71.28 per cent increase during the first two months (April-May) to Rs 22,840 core as against Rs 13,335 crore in the same period last year.

The buoyancy in direct tax collections had prompted the Finance Minister, Mr P. Chidambaram, to advise the Central Board of Direct Taxes (CBDT) to revise upwards its collection targets for 2008-09. As against the Budget estimate of Rs 3,65,000 crore for 2008-09, the CBDT is now looking at a target of Rs 3,90,000 to 4,00,000 crore this fiscal.

Daily Technicals - June 24 2008

Daily Technicals - June 24 2008

Technical Calls - June 24 2008

Technical Calls - June 24 2008

EIH Hotels

EIH Hotels

Varun Shipping

Varun Shipping

Infosys Technologies Annual/Directors Report



To The members,

We are delighted to present the report on our business and operations for the year ended March 31, 2008.

1. Results of operations in Rs. crore,except per share data 2008 2007Income from software services and products 15,648 13,149 Software development expenses 8,876 7,278

Gross profit 6,772 5,871 Selling and marketing expenses 730 719 General and administration expenses 1,079 927

Operating profit before interest and depreciation 4,963 4,225 Interest - - Depreciation 546 469

Operating profit before tax and exceptional items 4,417 3,756 Other income,net 683 375 Provision for investments - 2

Net profit before tax and exceptional items 5,100 4,129 Provision for taxation(1) 630 352

Net profit after tax and before exceptional items 4,470 3,777 Income on sale of investments, net of taxes - 6

Net profit after tax and exceptional items 4,470 3,783

Profit & loss account balance brought forward 4,844 2,195

Less: Residual dividend paid - 4 Dividend tax on the above - 1

Amount available for appropriation 9,314 5,973

Dividend Interim 343 278 Final 415 371 Special dividend 1,144 - Total dividend 1,902 649 Dividend tax 323 102

Amount transferred to general reserve 447 378

Balance in profit and loss account 6,642 4,844

EPS(2) before exceptional itemsBasic 78.24 67.82 Diluted 77.98 66.33

EPS(2) after exceptional items Basic 78.24 67.93 Diluted 77.98 66.44

Note: 1 crore equals 10 million

(1) Includes tax reversal of Rs. 121 crore and Rs. 125 crore for fiscal 2008 and 2007 respectively.

(2) Equity shares are of par value of Rs. 5/- each

2. Business

Total income increased to Rs. 15,648 crore from Rs. 13,149 crore in the previous year, at a growth rate of 19%. Our software export revenues aggregated Rs. 15,429 crore, up by 19% from Rs. 12,935 crore in the previous year. Of these, 63.1% of the revenues came from North America, 26.9% from Europe, and 8.6% from the rest of the world. The revenue from Europe increased from Rs. 3,393 crore to Rs. 4,207 crore, with a growth rate of 24% which is higher than the other regions. The share of fixed-price component of the business was 33%, compared to 28% during the previous year. Blended revenue productivity, in dollar terms, increased by 5.3% during the year.

The gross profit amounted to Rs. 6,772 crore (43.3% of revenue) as against Rs. 5,871 crore (44.6% of revenue) in the previous year The on-site revenues decreased from 51.7% in the previous year to 50.9%. The on-site person-months comprised 29.8% of the total billed

efforts, compared to 30.1% during the previous year. The operating profit amounted to Rs. 4,963 crore (31.7% of revenue) as against Rs. 4,225 crore (32.1% of revenue) in the previous year. Sales and marketing costs were 4.7% and 5.5% of our revenue during the year ended March 31, 2008 and 2007. General and administration expenses decreased from 7% in the previous year to 6.9%. We continue to reap the benefits of economies of scale. The net profit after tax and exceptional item was Rs. 4,470 crore (28.6% of revenue) as against Rs. 3,783 crore (28.8% of revenue) in the previous year. The net profit for the year included a tax reversal of Rs. 121 crore (previous year Rs. 125 crore). The tax provisions were reversed as it was no longer required in various overseas jurisdictions.

We seek long-term partnerships with clients while addressing their various IT requirements. Our customer-centric approach has resulted in high levels of client satisfaction. We derived 97% of our revenues from repeat business (i.e. a client who also contributed to revenues during the previous fiscal year). We added 170 new clients, with a substantial number of large global corporations. The total client base at the end of the year stood at 538. Further, we have 310 million-dollar clients (275 in the previous year), 141 five-million-dollar clients (107), 89 ten-million-dollar clients (71), 18 fifty-million-dollar clients (12), and 6 hundred-million-dollar clients (3). During the year, one of our clients contributed more than $300 million of revenues.

We added 45.12 lakh sq. ft. of physical infrastructure space. The total available space now stands at 164.77 lakh sq. ft. The number of marketing offices as of March 31, 2008 was 47.

3. Subsidiaries

We have five subsidiaries: Infosys BPO Limited, Infosys Technologies (Australia) Pty. Limited, Infosys Technologies (China) Company Limited, Infosys Consulting, Inc. and Infosys Technologies S. de R. L. de C. V and five step-down subsidiaries: Infosys BPO S.R.O., Pan Financial Shared Services India Private Limited, P-Financial Services Holdings B. V, Infosys BPO (Poland) Sp. Z.o.o, and Infosys BPO (Thailand) Limited.

Infosys BPO Limited (IBPO)

Infosys BPO Limited (formerly Progeon Limited) was incorporated in April 2002, in India, to address opportunities in business process management. As of March 31, 2008, we hold 99.98% of the equity share capital and voting power of Infosys BPO. During the year, Infosys BPO serviced 72 clients, added 5 clients, and generated Rs. 937 crore in consolidated revenue, with a net profit of Rs. 153 crore. The employee strength as on March 31, 2008 was 16,295. Our total investment in Infosys BPO as of March 31, 2008 was Rs. 659 crore.

During the year, IBPO concluded a sale and purchase agreement with Koninklijke Philips Electronics N.V (Philips) by means of which it made a 100% investment in the share capital amounting Rs. 107 crore in P-Financial Services Holding B.V, the Netherlands entity (Holding Company). This acquisition will help IBPO in acquiring domain skill sets in the finance and administration space, as well as enhance its global presence with centers in Thailand and Poland.

Infosys Technologies (Australia) Pty. Limited

In January 2004, we acquired, for cash, 100% of the equity in Expert Information Services Pty. Limited, Australia, for US $24.3 million (Rs. 66 crore). The acquired company was renamed Infosys Technologies (Australia) Pty Limited. During the year, Infosys Technologies (Australia) Pty. Limited serviced 49 clients and generated Rs. 556 crore in revenue, with a net profit of Rs. 101 crore. The employee strength as on March 31, 2008 was 363.

Infosys Technologies (China) Company Limited

Infosys Technologies (China) Company Limited (Infosys China) is a wholly-owned subsidiary and was formed to expand our business operations in China. We have invested US $10 million (Rs. 46 crore) of capital in Infosys China and advanced a loan of US $8 million (Rs. 32 crore) as of March 31, 2008. During the year, Infosys China serviced 59 clients, and generated a revenue of Rs. 77 crore, with a net loss of Rs. 7 crore. The employee strength as on March 31, 2008 was 699.

Infosys Consulting, Inc.

In April 2004, we established Infosys Consulting, Inc., a wholly-owned subsidiary, in Texas, U.S., to add high-end consulting capabilities to our Global Delivery Model. The Board had approved an investment of up to US $75 million in the share capital of Infosys Consulting, Inc. We have invested US $40 million (Rs. 171 crore) as of March 31, 2008. During the year, Infosys Consulting serviced 90 clients, and generated a revenue of Rs. 246 crore, with a net loss of Rs. 51 crore. The employee strength as on March 31, 2008 was 265.

Infosys Technologies S. de R. L. de C. V.

During the year, we established our first Latin American subsidiary, and opened a development center and office for the region in Monterrey Mexico. The subsidiary, Infosys Technologies S. de R. L. de C. V, provides our complete range of business consulting and information technology services for clients in all industries including banking, financial services, retail, consumer packaged goods, resource, energy and utilities. The center provides key offerings in business process outsourcing, infrastructure management and packaged solutions implementation. The Board has approved an investment of up to Mexican Pesos 59.9 million. During the year, Infosys Mexico serviced six clients, and generated a revenue of Rs. 3 crore, with a net loss of Rs. 7 crore. The employee strength as on March 31, 2008 was 75. Our investment in the subsidiary as of March 31, 2008 was Rs. 22 crore.

4. Finacle(R)

Finacle(R), our universal banking solution, helps banks win in the flat world by enabling them to shift their strategic and operational priorities. It maximizes their opportunities for growth while minimizing the risks that come with large-scale business transformation. This modular solution addresses the core banking, treasury, wealth management, consumer and corporate e-banking, mobile banking and web-based cash management requirements of universal, retail and corporate banks worldwide. We recently released Finacle(R) version 10, which brings a whole new set of offerings including Islamic banking, wealth management and enhanced mobile banking solutions.

Finacle(R) currently powers 109 banks across 60 countries, helping them serve over 20,000 branches, 160 million customers, 230 million accounts, and 1,50,000 concurrent users, supporting over 69 million peak banking transactions per day spread across multiple installations. Independent reports by renowned research firms have positioned Finacle(R) among the leaders in the global evaluation of retail core banking solution vendors. Finacle(R) has also emerged as one of the most scalable core banking solutions in the world by achieving an unparalleled performance benchmark of 104 million effective transactions per hour (29,010 ETPS).

5. Quality

We continue to invest and reap benefits through quality initiatives. In August 2007, Infosys China was appraised at Level 5 of the latest CMMI model, v1.2. It is the first company in China to hold this certification.

Apart from continued focus and surveillance audits in ISO certifications such as ISO 9001-TickIT, ISO 27000, AS 9100, etc., our quality department manages key process improvement initiatives. Our quality initiatives are aligned to business goals of units through the balanced scorecard approach.

Some of the key process improvement initiatives are:

* IPM+, an integrated project management suite, to improve project and program management

* Enhanced focus on tools and reuse to improve productivity

* BrITe (Business results impact @ Infosys Technologies), an innovative methodology that uniquely blends IT specific Six Sigma approach with statistical predictive modeling and Lean principles to address diverse business critical parameters. We have a trademark for this improvement methodology.

* The iSOP (Infosys Scaling Outstanding Performance) program to evaluate and identify improvements in units using the Baldrige model

* Metrics-based models to evaluate quality of object-oriented design

* PRIMA awards, a quarterly recognition program for execution excellence.

The PRIMA framework has helped to manage and improve excellence.

6. Software Engineering and Technology Labs

The Software Engineering and Technology Labs (SETLabs) at Infosys is the center for applied technology research in software engineering and enterprise technology. SETLabs leverages emerging technologies for improving engineering effectiveness and developing client-focused business solutions. During the year, SETLabs built several solutions, frameworks, tools and methodologies in the areas of software engineering, high performance and grid computing, convergence technologies, information management, Web 2.0 and knowledge engineering.

During the year, more than 100 articles were published by SETLabs researchers in leading journals, magazines and conference proceedings. SETLabs Briefings published three industry-specific issues related to insurance, banking and capital markets, and energy verticals, in addition to its regular issues. A special issue on testing was also published. SETLabs conducted 24 Innovation Workshops with customers from the US and Australia, to identify research collaboration possibilities. SETLabs collaborated with leading national and international universities such as the Indian Institute of Information Technology, Hyderabad, Purdue University, University of Southern California, and Queensland University of Technology. Researchers from BT Group PLC and SETLabs will also collaborate on research and innovation. A Memorandum of Understanding (MoU) has been signed to this effect.

We currently have two issued patents granted by the US Patent and Trademark Office. An aggregate of 119 patent applications are pending in the US Patent and Trademark Office and Indian Patent Office.

7. Reorganization

During the year, we reorganized our business units in anticipation of changes in the global IT industry and to differentiate vis-a-vis our competitors. The reorganization, effective November 2007, will help us to enhance the 'One Infy' experience and will, in turn, deepen our transformational capabilities. The restructuring will also help us to broaden our customer base and strengthen our current portfolio through scale benefits. The new opportunities will leverage the strengths of our next-generation of leaders.


* Six vertical Industry Business Units (IBUs) and five Horizontal Business Units (HBUs) that cut across all verticals

* The European business divided into industry verticals, and integrated within the IBUs

* The New Growth Engines (NGE) unit formed to expand business in Australia, China, Japan, Middle East, Canada, South America and Latin America

* India Business Unit formed to focus on India and tap the growing domestic market

* Increased focus on delivery excellence

* Consolidated consulting skills

* Consolidated sales and marketing functions

Executive Council

As part of the re-organization, an Executive Council (EC), chaired by the CEO, consisting of the COO, CFO, executive board members and select unit heads, was constituted, to leverage the strengths of our next generation of leaders.

The responsibilities of the EC members include participation in the formulation of business strategy with the Board, framing policy for strategy deployment, ensuring management and operational supervision, and enabling risk mitigation strategies.

8. Branding

During the year, we received the Diamond Award for the best global brand campaign in the category of Sharpening Brand and Competitive Differentiation from the IT Services Marketing Association (ITSMA).

We got extensive coverage in leading global print, electronic and digital media. Time magazine commented on our professionalism with the headline 'Meritocracy is the model.' Newsweek referred to us as a 'Titan of globalization.' Business Week, The Independent, The Guardian, Financial Times, BBC World, CNBC and CNN covered Infosys during the year. We were also featured on leading online business and technology destinations like, and CNBC promoted the Infosys brand on its channels across the US, Europe and Asia as a sponsor of the 'Who's in charge?' debate and as the host of the 2020: Future By Design breakfast at Davos.

Our employees continued to demonstrate thought leadership and domain expertise with papers in leading industry publications like Bank Accounting & Finance ('The Subprime Mortgage Market: Current State and the Road Ahead'), Wall Street & Technology ('Corporate Actions Outsourcing Utilizing a SaaS Model') and Manufacturing Business Technology ('Win in the flat world: Apply Lean principles across the IT organization').

We were recognized as a leader by leading analyst firms for many of our offerings. A leading analyst firm ranked us as a leader in global IT infrastructure outsourcing, SAP implementation providers and Oracle implementation providers. We also figured as a leader for North America and Europe Offshore Application Services. Infosys BPO was ranked amongst the top six comprehensive FAO service providers by a leading analyst firm.

We were the key sponsor of many flagship events including Sapphire and Oracle Open World. Our executives were invited speakers at leading C-level conclaves like India Economic Summit, Fortune CEO Summit and World Economic Forum.

We have leveraged Web 2.0 technologies for effective online branding. Our blogs ran on, our videos run on YouTube and the investor section of our website was voted as the winner in the Best Investor Relations Website' and Best Corporate Governance' categories in Asia Pacific and Africa by MZ Consult NY LLC, in the 2008 investor relations global rankings. We also launched our own intranet-based TV channel, Infy TV, for internal communication and branding.

Infosys Foundation is sponsoring the ACM (Association for Computing Machinery) Award through an endowment. The ACM-Infosys Foundation Award in the Computing Sciences recognizes personal contributions by young scientists and system developers to a contemporary innovation that, through its depth, fundamental impact and broad implications, exemplifies the greatest achievements in the discipline. The award carries a cash prize of US $1,50,000.

We also instituted a Rs. 1 million Infosys Mathematics Award jointly with the National Institute of Advanced Studies in order to encourage research in mathematics and sciences.

9. Awards

These are some of the awards that we received during the financial year 2007-08:

* Award for best investor relations by an APAC company in the US market at IR Magazine US Awards 2008

* ICAI judged the Infosys Annual Report 2007 as the best in the Information Technology, Communication and Entertainment Enterprises category

* The International Association of Outsourcing Professionals (IAOP) named Infosys in its 2008 Global Outsourcing 100

* Best Investor Relations Website and Company with Best Corporate Governance Practices in Investor Relations (IR) Global Rankings 2008 in APAC categories

* Voted the New Age Employer of Choice in 2007 in a poll conducted by CNBC-TV18, CNBC Awaaz and

* We moved up to No. 14 on FinTech 100, an international annual listing of the top 100 global application and service providers to the financial services industry

* Named Best Outsourcing Partner in Wafers Readers' Survey

* Named a leader in Global IT Infrastructure Outsourcing

* NASSCOM-India Today Woman Corporate Award for excellence in gender inclusivity

* Global MAKE award for the fourth year

* Fortune's Top 10 Companies for Leaders

* Bloom Group named as a prospect-friendly website

* The Reputation Institute named Infosys, a globally respected company

* Dun &T Bradstreet's Top Indian IT Companies 2007

* LACP Silver Award for Infosys Annual Report

* 2007 Optimas Award in the Global Outlook category

Our customers and market influencers also commended our service excellence and delivery efficiency during the year:

* The 2007 Boeing Performance Excellence Award (BPEA) from The Boeing Company for a 12-month gold-level performance

* Named Royal Bank of Scotland Group's 2007 Best Technology Supplier

* Two Partner in Progress awards from Sears Holdings Corporation

* DaimlerChrysler's IPS Supplier of the Year 2006

* Named Sainsbury's 2006 IT Supplier of the Year

10. Development centers

During the year, we incurred capital expenditure aggregating Rs. 1,181 crore on physical infrastructure, (Rs. 1,194 crore during the previous year), and another Rs. 189 crore on technological infrastructure, (Rs. 249 crore in the previous year). In all, Rs. 1,370 crore has been invested, as against (Rs. 1,443 crore in the previous year).

As of March 31, 2008, in India, we had 164.77 lakh sq. ft. of space with 77,754 seats, and an additional 83.63 lakh sq. ft. under construction that would provide 26,881 seats.

11. Liquidity

We continue to be debt-free, and maintain sufficient cash to meet our strategic objectives. Liquidity in the balance sheet needs to balance between earning adequate returns and the need to cover financial and business risks. Liquidity also enables us to make a rapid shift in direction, should the market so demand. During fiscal 2008, internal cash flows have more than adequately covered working capital requirements, capital expenditure, investment in subsidiaries and dividend payments, leaving a surplus of Rs. 2,079 crore. As on March 31, 2008, we had liquid assets of Rs. 7,689 crore as against Rs. 5,610 crore at the previous year-end. These funds have been invested in deposits with banks and highly-rated financial institutions.

12. Increase in share capital

During the year, we issued 7,85,896 shares on the exercise of stock options under the 1998 and 1999 employee stock option plans. Due to this, the outstanding issued, subscribed and paid-up equity share capital increased from 57,12,09,862 shares to 57,19,95,758 shares as of March 31, 2008.

13. Appropriations


In October 2007, we paid an interim dividend of Rs. 6/- per share (120% on par value of Rs. 5/-). We recommend a final dividend of Rs. 7.25 per share (145% on par value of Rs. 5/- per share) and a special dividend of Rs. 20/- per share (400% on par value of Rs. 5/- each).

We recommended the special dividend on crossing a significant milestone of reaching US $1 billion in net profits.

The total dividend amount is Rs. 1,902 crore, as against Rs. 649 crore for the previous year. Dividend (including dividend tax) as a percentage of profit after tax is 49.8% (19.8% excluding the special dividend) as compared to 19.9% in the previous year.

The register of members and share transfer books will remain closed from May 31, 2008 to June 14, 2008, both days inclusive. Our Annual General Meeting has been scheduled for June 14, 2008.

Transfer to reserves

We propose to transfer Rs. 447 crore to the general reserve. An amount of Rs. 6,642 crore is proposed to be retained in the profit and loss account.

14. Dividend policy

Our current financial policy is to pay dividends up to 20% of net profits.

The Board reviewed the policy, and considering the need to balance the cash required in the business with that of enhancing returns to shareholders, decided to increase the dividend payout ratio up to 30% of net profits effective fiscal 2009.

15. Corporate governance

We continue to be a pioneer in benchmarking our corporate governance policies with the best in the world. Our efforts are widely recognized by investors in India and abroad. We have undergone the corporate governance audit by ICRA and CRISIL. ICRA has rated our corporate governance practices at CGR 1. CRISIL has assigned CRISIL GVC Level 1 rating to us.

We have complied with the recommendations of the Narayana Murthy Committee on Corporate Governance constituted by the Securities and Exchange Board of India (SEBI). For fiscal year 2008, the compliance report is provided in the Corporate governance report section of this Annual Report. The auditors' certificate on compliance with the mandatory recommendations of the committee is annexed to this report.

We have documented our internal policies on corporate governance. In line with the committee's recommendations, the Management's discussion and analysis of the financial position of the Company is provided in this Annual Report and is incorporated here by reference.

We continue our practice of providing a report on our compliance with the corporate governance requirements of six countries, in their national languages, for the benefit of our shareholders in those countries.

During the year, we continued to fully comply with the US Sarbanes-Oxley Act of 2002. Several aspects of the Act such as the Disclosure Committee Requirements, Whistleblower Policy, and Code of Conduct for Senior Officers and Executives have already been instituted.

16. Additional information to shareholders

We continue to provide additional information in the form of intangible assets score sheet, human resources accounting and value-added statement.

We used to report the 'Current cost adjusted financial statements' as an additional information to the shareholder, using the methodology prescribed by the Guidance Note on Accounting for Changing Prices issued by the Institute of Chartered Accountants of India which is similar to IAS 29 issued by the International Accounting Standards Committee (IAS). Recently, the International Practices Task Force (IPTF) appointed by the AICPAs Center for Audit Quality had identified certain hyper-inflationary economies for which this standard is applicable. IPTF's criteria for identifying hyper-inflationary economies is similar to that of IAS 29, Financial Reporting in Hyper-inflationary Economies. Since, this standard is applicable only to identified hyper- inflationery economies, we do not consider it relevant to continue publishing this report and the same has been discontinued starting this fiscal year.

During the year, NASDAQ modified its rules relating to dispatch of annual reports to ADR holders. Under the amended rules, a company can host the annual report on its website, in lieu of physical distribution. We have decided to adopt this rule and accordingly have made the annual report and the filing with the US Securities and Exchange Commission (SEC) in Form 20-F available on our website However, a physical copy will be made available to shareholders on request.

Consequent to this, we are not circulating the Form 20-F filing with SEC to our shareholders in India, but the same would be made available to shareholders on request. However, the extract of the audited balance sheet and income statement as per US GAAP is provided in the Annual Report.

The International Financial Reporting Standards (IFRS) are gaining the attention of companies, regulators and investing communities across the globe. Many countries have adopted IFRS and some of them, including India, are in the process of adopting the same. Recently, SEC permitted Foreign Private Issuers to file financial statements in accordance with IFRS without any reconciliation with US GAAP SEC is in the process of announcing a framework and rules for adoption of IFRS by domestic companies in the US.

Currently, we report our financials under both Indian and US GAAP We also report in substantial compliance with the GAAP of six countries namely - Australia, Japan, UK, France, Germany and Canada. We have evaluated the requirements of IFRS and believe that we are fully prepared to adopt IFRS. However, we will await the issuance of final framework and rules for adoption of IFRS by domestic companies by SEC before we adopt the same. In the interim, we have provided the balance sheet and income statement in substantial compliance with IFRS in the Annual Report.

17. Particulars under Section 212 of the Companies Act

As per Section 212 of the Companies Act, 1956, we are required to attach the directors' report, balance sheet, and profit and loss account of our subsidiaries. We had applied to the Government of India for an exemption from such an attachment as we present the audited consolidated financial statements in the Annual Report. We believe that the consolidated accounts present a full and fair picture of the state of affairs and the financial condition, and are accepted globally. The Government of India has granted us exemption from complying with Section 212. Accordingly, the Annual Report does not contain the financial statements of these subsidiaries. We will make available the audited annual accounts and related information of subsidiaries, where applicable, upon request by any of our investors. These documents will also be available for inspection during business hours at our registered office in Bangalore, India.

18. Particulars of employees

As required under the provisions of Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of employees are set out in the annexure to this report. The Department of Company Affairs has amended the Companies (Particulars of Employees) Rules, 1975 to the effect that particulars of employees of companies engaged in the information technology sector posted and working outside India, not being directors or their relatives, drawing more than Rs. 24 lakh per financial year or Rs. 2 lakh per month, as the case may be, need not be included in the statement. Accordingly, the statement included in this report does not contain the particulars of employees who are posted and working outside India.

19. Directors

As per Article 122 of the Articles of Association, Claude Smadja, Sridar A. Iyengar, Nandan M. Nilekani, K. Dinesh and Srinath Batni retire by rotation in the forthcoming Annual General Meeting. All of them, being eligible, offer themselves for re-appointment.

20. Responsibility statement of the Board

The directors' responsibility statement, setting out the compliance with the accounting and financial reporting requirements specified under Section 217(2AA) of the Companies Act, 1956, in respect of the financial statements, is annexed to this report.

21. Auditors

The auditors, M/s. BSR &T Co. Chartered Accountants, retire at the ensuing Annual General Meeting and have confirmed their eligibility and willingness to accept office, if re-appointed.

22. Fixed deposits

We have not accepted any fixed deposits and, as such, no amount of principal or interest was outstanding as of the balance sheet date.

23. Conservation of energy, research and development, technology absorption, foreign exchange earnings and outgo

The particulars as prescribed under Sub-section (1)(e) of Section 217 of the Companies Act, 1956, read with the Companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988, are set out in the annexure to this report.

24. Human resource management

Employees are vital to the Company. We have created a favorable work environment that encourages innovation and meritocracy. We have also set up a scalable recruitment and human resources management process, which enables us to attract and retain high caliber employees. We added 13,659 (net) and 22,671 (gross) employees, taking the total strength to 73,490 (net) up from 59,831 at the end of the previous year. Our attrition rate stands at 13.4% compared to 13.7% for the previous year. Attrition, excluding involuntary separations, stood at 12.1% compared to 12.2% in the previous year. Over the last year, 8,85,035 people applied to us for employment and we continue to remain an employer of choice in our industry

25. Sustainability initiatives

Sustainability to us means measuring success by how much wealth we create responsibly for our customers, employees, the society in which we operate and all our other stakeholders. This commitment is embedded in the setting up of a Sustainability Executive Council to promote our efforts and help the business units view operations in that context. We believe in creating sustainable frameworks with academia, NGOs, non-profit organizations, and civil and trade bodies to reach out to communities as well as help create policies with the government.

Enabling work environment

A good workplace, as we define it, balances our commitment to the health and safety of employees while reducing the environmental impact.

* Our commitment to Health, Safety and Environment (HSE) is deployed through Project Ozone, a comprehensive HSE management system initiated in 2003. Our goals in the medium term include reducing the consumption of water, power and paper by 25% and carbon emissions by 10%. We plan to become carbon neutral in the next two years by managing and reducing carbon emissions, reducing carbon intensity by purchasing green energy, and creating carbon sinks.

* Our Health Assessment and Lifestyle Enrichment (HALE) initiative, focuses on enhancing the emotional value-add of our employees, by optimizing their health, quality of life and work environment. We have created world-class gymnasiums, swimming pools, aerobics centers, tennis courts, etc. This year, HALE conducted 52 events related to health and wellness in which 13,200 employees participated. All employees are covered by health insurance, while contractual employees benefit from subsidized annual medical check-ups.

Enabling employees

* Diversify and inclusion: As a global organization, diversity enables us to build confidence and trust in the minds of customers and employees. Our employees belong to 70 nationalities. We have recruited 239 disabled employees. To attract the most competitive talent, we offer an inclusive work environment. Our principle is to de-emphasize the differences and celebrate commonality. We have set up a Diversity Office guided by a Diversity Council comprising members from across the Infosys Group. We have created support systems and programs for employees, especially working mothers, the disabled and employees of different nationalities. We have also introduced diversity dashboards, an inclusivity index and a 360 degree feedback mechanism for managers to ensure that all employees are aware of their accountability to diversity and inclusion.

Employee education: We are committed to equipping employees with skills that will help their career and personal growth.

* Our Education and Research (E&TR) department offers technical and project management training to employees. Through the foundation program, all entry-level employees are trained at the Global Education Center in Mysore. It amounted to 6,13,738 training person days. On the role-based training front, employees opted for both classroom as well as e-learning courses on technical and project management skills, leading to 37,710 training person days. About 27,604 employees completed their technical competency certification program this year. We piloted the internship program for India-based, final-year Computer Science students this year. So far, 243 interns from 33 premier colleges have joined the program. During the year, E&TR won the ASTI) (American Society for Training and Development) BEST award.

* Infosys Leadership Institute (ILL: ILI caters to employees' needs in the areas of behavioral and leadership skills and supports personal development through systematic processes. ILI's efforts resulted in 1,80,019 training person-days this year.

* Project Management Center of Excellence (PMCoE): PMCoE focuses on enhancing the project management competencies of our employees through multiple interventions. To date, PMCoE has trained over 2,800 managers in professional project management framework. We have over 1,800 managers / senior managers certified as Project Management Professionals from PMI, USA. PMCoE will help the business through continuous improvements on consultancy capability, mentoring structures, training modules and best practices.

* ES Academy: The Academy trained 1,400 MBA graduates (functional consultants) in domain, technology, project management and quality processes, and leadership. During the year, 4,000 software engineers were trained in domain and business processes. It also provides technical and domain certifications that are benchmarked with worldclass academic certifications. Since 2005, the Academy has certified 16,000 employees. It continues to collaborate with external educational units like Oracle University and Seibel University, in order to leverage their knowledge-base for our functional and technical consultants. Besides the internal education programs, we fund higher education programs for employees who wish to pursue degrees such as MBA, MCA, MS, CFA, etc. Since 2005, we have sponsored the education of about 280 employees.

* Knowledge Management (KM): The KM initiative was formally launched at Infosys China during the year. We maintain our successful run with new methodologies for knowledge sharing and adoption. Knowledge blogs and customized wiki solutions are rolled out to employee communities to help them foster collaborative networks for speedier and smart project execution. Our central knowledge repository saw significant growth in volumes and quality this year with more than 30,000 knowledge assets, complemented by half as many documents distilled from projects and process-mandated artifacts. In addition, other KM systems host around 90,000 knowledge interactions and are archived.

Empowering society

Since inception in 1981, we have created multiple frameworks for corporate governance, education, infrastructure and inclusive growth. We believe that corporations must reach out to the society and help by improving the quality of education and healthcare through various community development programs. Our Corporate Social Responsibility (CSR) activities are carried out at four different levels:

* Global initiatives to develop human capital by creating sustainable frameworks with educational institutes for training students and faculty

* The Infosys Foundation has a dedicated team to reach out to the underprivileged and enrich their lives

* At the Board level, members lead by example by participating in the advisory councils of NGOs and civil bodies, and donating their time, money and effort to various causes

* At the employee level, location-wise CSR teams address local requirements

Our five key CSR themes are education, healthcare, art and culture, rural upliftment and inclusive growth. We identify partners and beneficiaries based on their goals, credibility, performance and alignment to our vision and values. The initiatives in education, inclusive growth and pro bono engagements are detailed here, while initiatives on healthcare, art and culture, and rural upliftment are detailed in our report on Infosys Foundation.


* Primary level initiatives

* We are a key sponsor of the Akshaya Pafra foundation which provides unlimited free meals for economically-disadvantaged school students. We assist 80,000 children across India through this meal scheme.

* We have set up more than 15,000 libraries and are also actively involved in constructing classrooms, renovating old school buildings, donating school equipment, conducting career counseling and providing scholarships to students

* Secondary level initiatives

* Catch Them Young (CTY), our initiative to motivate school students to dream big and aim high, has benefited around 6,390 students since 2005

* Computers @ Classrooms initiative donated 1,803 computers to schools and NGOs to promote computer awareness

* Tertiary level initiatives:

* We have collaborated with 1,309 colleges in India and abroad, and trained 4,200 teachers and 87,424 students since 2005.

* Campus Connect, our high impact and largest academic initiative, was started in 2004. It focuses on preparing industry ready IT professionals by aligning skills of engineering students with industry needs. There are 490 colleges currently partnering with us and together we have enabled 25,521 students (with 15,000 in the pipeline) during the year.

* Project Genesis is aimed at aligning the teaching methodology and course-curriculum at graduate schools to the BPO industry's needs, especially in smaller towns, to improve the students' employability. About 798 teachers and 22,619 students from 389 colleges were benefited this year. The number of students who benefited from this program increased by almost 200%.

* In Step, our global internship program, attracts students from the best academic institutions around the world to work on live and organizationally relevant projects. The 80+ colleges include Stanford, Oxford, Comell, Purdue, Harvard and others from Spain, Italy, Denmark, Norway, Chile, Colombia and Israel. We receive, on an average, 12,000 applications and select 100+ students every year.

* Infosys Fellowship Program, instituted at 12 premier academic institutions in India, supports research leading to a Ph.D

* Through Industry Academia Partnership (IAP), Infosys BPO works on aligning course curriculum with industry requirements. As part of the program, we provide summer internships for final-year students and offer employment based on performance. Since its inception in 2007, IAP has covered 17 colleges, enabling 714 students. A knowledge center in Rajasthan is currently being set up.

* Academic Entente (AcE) is a strategic initiative in which our employees collaborate with faculty from leading universities like Harvard, Stanford and Tuck School of Business, to publish case studies on innovation and consulting. Our employees participate in industry-academia conferences and guest lectures at prestigious forums, such as the Balanced Scorecard Hall of Fame. Student groups and faculty members also visit our campuses.

* Every year, we train students from countries at the nascent stage of developing knowledge workers such as Thailand, Panama, China, Malaysia and Mauritius. While the travel costs are borne by the respective governments, we fund their training and accommodation. We have trained 560 students since 2005. In Australia, we promote tertiary education by providing student scholarships.

Inclusive growth

* We have recruited 239 disabled people for our Infosys BPO operations, making us the biggest employer of the disabled in the Indian IT industry Through the disability initiative, we help the selected employees gain relevant competencies for the ITeS industry and enable our managers to create an inclusive work environment. Our goal is to increase the number of disabled employees to at least 2% of our workforce in ITeS.

* Infosys Women's Inclusivity Network (IWIN), our gender inclusive program, was initiated in 2003. IWIN works with bodies like NASSCOM to create frameworks and research on gender inclusion. Women employees constitute 31% of our workforce today. This year, to mark International Women's Day, we launched SPARK, a unique two-day event for women students in their fourth-sixth semester from engineering colleges across India. The event witnessed the participation of 420 colleges.

* Special Training Program (STP), aims at enabling students from rural areas to join the IT / ITeS industry, and has so far benefitted 479 students.

In addition, 60% of our development centers in India are located in Tier 2 and 3 cities. This infrastructure policy has created employment for 30,632 employees and the planned expansion will facilitate an additional 21,000 employees in these locations. It has further facilitated business / employment for the local community.

We continue to take up pro bono engagements with both Indian and global bodies. We are partnering with Expand, a non-profit international development organization, to develop an information and communication technology (ICT)-enabled application that would minimize inventory requirements, reduce waste, and allow retailers and farmers to be better integrated.

Infosys Young Indians (INFYi), the first corporate chapter of Confederation of Indian Industry (CII), aims to provide a platform for social entrepreneurs by undertaking activities in economy, education, environment, healthcare and youth affairs. Currently, more than 50 young Infoscions are working on a set of social entrepreneurship ideas.

We constantly monitor the progress of initiatives. On the education front, we conduct periodic reviews with academia partners. The success is measured by the annual increase in the number of students and teachers who volunteer to get trained. For example, the Special Training program conducted at IIIT B for socially and economically underprivileged, resulted in close to 100% placements this year.

Further details on ours ustainability initiatives will be available in the sustainability report to be published on our website in the near future.

26. Employee Stock Option Plan(ESOP)

We had introduced various stock option plans for our employees. The details of options granted under the 1998 Stock Option Plan (the 1998 Plan) and the 1999 Stock Option Plan (the 1999 Plan) are given in the table.

1998 Plan 1999 PlanTotal grants authorized by the plan (No.) 1,17,60,000 ADS 5,28,00,000 shares

Pricing formula on date Not less than 90% Fair market valueof grant of fair market value

Variation in terms NA NA

Ratio of ADS to equity shares 1 ADS = 1 equity share NA

Options granted during the year (No.) - -

Weighted average price per option granted (Rs.) NA NA

Options vested as of March 31, 2008 (No.) 15,30,447 10,89,041

Options exercised during the year (No.) 5,00,465 2,85,431

Money raised on exercise of options (Rs. crore) 40 18

Options forfeited and lapsed during the year (No.) 53,212 1,17,716

Total number of options in force at the end of the year (No.) 15,30,447 14,94,693

Grant to senior management - -

Employees receiving 5%+ of the total number of options granted during the year - -

Employees granted options equal to or exceeding 1% of the issued capital - -

Diluted EPS on issue of shares on exercise calculated in accordance with AS 20 Rs. 77.98 Rs. 77.98

The Securities and Exchange Board of India (SEBI) has issued the (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. This is effective for all stock option schemes established after June 19, 1999. In accordance with these guidelines, the excess of the market price of the underlying equity shares as of the date of the grant over the exercise price of the option, including up-front payments, if any, is to be recognized and amortized on a straight line basis over the vesting period. Our 1994 option plan came to an end in fiscal 2000.

We have the 1998 stock option plan and 1999 stock option plan, where the options are issued to the employees at an exercise price not less than the fair market value. If the compensation cost on account of stock options granted after June 30, 2003 (as required by the amendment effective June 30, 2003) under 1998 and 1999 plans was computed using the fair value method, our compensation cost would have been higher by Rs. 13 crore and Rs. 1 crore and our profit would hence be less by Rs. 13 crore and Rs. 1 crore for fiscal 2008 and 2007 respectively The impact on EPS for fiscal 2008 and 2007 would be Rs. 0.23 and Rs. 0.02 respectively.

During fiscal 2008 and 2007, stock options under the 1998 Plan have not been granted, hence the weighted average fair values of grant during these years are nil.

During fiscal 2008, stock options under the 1999 Plan have not been granted and hence the weighted average fair values of grant during fiscal 2008 is nil.

During fiscal 2007, we granted 6,38,761 options under the 1999 Plan with a weighted average fair value of Rs. 582 per option.

2008 2007 No. of Weighted No. of Weighted options average options average exercise exercise price price1998 Plan Outstanding at the beginning of the year 20,84,124 900 45,46,480 908 Forfeited (53,212) 2,050 (1,71,143) 1,845Exercised (5,00,465) 775 (22,91,213) 860Outstanding at the end of the year 15,30,447 813 20,84,124 900 Vested at the end of the year 15,30,447 813 20,84,124 900

1999 Plan Outstanding at the beginning of the year 18,97,840 1,121 1,91,79,074 575 Granted - - 6,38,761 2,121 Forfeited (1,17,716) 1,167 (1,11,306) 552 Exercised (2,85,431) 634 (1,78,08,689) 572 Outstanding at the end of the year 14,94,693 1,163 18,97,840 1,121 Vested at the end of the year 10,89,041 593 12,59,079 613


We thank our customers, vendors, investors and bankers for their continued support during the year. We place on record our appreciation of the contribution made by employees at all levels. Our consistent growth was made possible by their hard work, solidarity, cooperation and support.

We thank the Governments of various countries where we have operations. We also thank the Government of India, particularly the Ministry of Communication and Information Technology, the Customs and Excise Departments, the Income Tax Department, the Software Technology Parks - Bangalore, Chennai, Chandigarh, Hyderabad, Jaipur, Mysore, Pune, Bhubaneswar, Mangalore, Thiruvananthapuram and New Delhi - the Ministry of Commerce, the Ministry of Finance, the Reserve Bank of India, the state governments, and other government agencies for their support, and look forward to their continued support in the future.

For and on behalf of the Board of Directors

S. Gopalakrishnan S. D. Shibulal Chief Executive Officer and Chief Operating Officer and Managing Director Director

BangaloreApril 15, 2008

Annexure to the directors' report

a) Particulars pursuant to Companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988

Conservation of energy

We have a focused strategy to optimize energy consumption. We purchase PCs and laptops that meet environmental standards, replace old hardware with more energy-efficient hardware, and are decreasing the amount of equipment to further reduce our energy consumption. We are also considering a global, socially and environmentally responsible disposal process for our equipment. Our technology refresh cycles are planned to be directly associated with performance and energy efficiency of the systems. We are consolidating systems to reduce the hardware footprint and thereby reduce energy consumption in terms of cooling and power. We have recently consolidated about 185 individual file servers across the world into 33 Network Attached Storage (NAS) infrastructure, with higher capacities. This also means that we will not be adding file servers into environments and just add disks into these NAS infrastructure for provisioning storage. In the long term, this is a sustainable mode of conserving power and cooling, apart from other costs and efforts.

Our upcoming buildings will be Gold rated from LEED, the certification for energy efficiency of buildings. We are working with subject matter experts to employ latest and efficient technologies in every aspect of energy consumption areas such as lighting, air conditioning, etc. Through our integrated approach to implementing infrastructure, we hope to reduce energy consumption by 50% over the next few years. We are improvising on our air conditioning and cooling systems by adopting cutting-edge technology. Similarly, we are working on lighting systems to make optimum use of daylight and attain maximum efficiency through artificial light. We plan to procure green power to reduce emissions.

Research and Development (R&D)

Research and development of new services, designs, frameworks, processes and methodologies continue to be important to us. The Intellectual Property (IP) created has led to enhanced quality, productivity and customer satisfaction.

R&D initiative at institutes of national importance

The Maintenance Center of Excellence of SETLabs collaborated with the Indian Statistical Institute to work out alternate pricing models. An application for a patent has been filed based on this work. We are also working with the Indian Institute of Information Technology, Hyderabad on unstructured data analytics, inference and diagnostics, and development of next-generation business intelligence tools. We collaborated with the Indian School of Business, Hyderabad on managing and driving innovation in services organizations. This project led to a better understanding of areas where we can operationalize innovation in our customer engagements. The e-commerce research group is working with the Indian Institute of Science, Bangalore on the application of game theory and mechanism design to web service composition and procurement. A novel method of combinatorial auction has been designed taking care of service level agreements and quality of service.

Specific areas for R&D

The Maintenance Center of Excellence of SETLabs has transformed the maintenance engineering life cycle into a platform-based, knowledge-centric, collaborative process that significantly differentiates our maintenance offering. The competitive advantage of our Mantra platform was reflected when it helped us win large deals. Two patents applications have been filed around the Mantra platform.

The High Performance and Grid Computing research group has developed two platforms called Gradient and GridScape. Our Gradient platform virtualizes distributed and heterogeneous data sources enabling real-time data integration. This is possible by leveraging existing enterprise infrastructure without any data replication or data movement. Our GridScape platform embodies the vision of a next-generation data center based on a batch workflow distributed over a heterogeneous resource environment. A single dashboard will be available for job management, scheduling, and resource monitoring.

The Convergence Lab in SETLabs has developed an entire suite of solutions around the mConnect platform. The team has developed a mobile banking product, a mobile local search solution, and a mobile ticketing and billing solution. Efforts are on to develop a mobile commerce ecosystem consisting of telecom operators, handset vendors, banks, media companies and local content providers. Besides this, the team is working on wireless networking, sensor networks, and network and device convergence.

The Web 2.0 research team has built a framework called Web 2.0 Metrices that benchmarks global Web 2.0 initiatives. This has helped customers develop a roadmap for Web 2.0 initiatives in their organizations. Based on their work, the team has presented papers, conducted tutorials and organized workshops in multiple prestigious conferences. The team also conducted several workshops for customers.

The Information Management group of SETLabs strengthened its HIMI (Holistic Information Management Infrastructure) platform by adding several features such as text cCz image analytics, semantic search, and inference and diagnostics. This platform facilitates inference, reasoning, diagnosis, root cause analysis and supports operational and market intelligence across several industrial domains. The research team is engaged with customers from the financial, automobile and healthcare sectors.

The Knowledge Engineering research lab of SETLabs has developed

IP in rule modeling and execution, knowledge extraction (from text and images), semantic search, knowledge assisted diagnostics, and agent assisted software project management. This IP forms the core of various solutions and is used to improve our knowledge reuse and productivity. The team has filed six patent applications and published several papers.

Our Banking and Capital Markets unit has conceived the Financial Technologies Research Center (FTRC) initiative to drive leading edge domain thinking and technology on industry/client issues and build/enhance IP based capabilities for our customers. This will enable us to provide specific research offerings to clients by leveraging IP created by our research wing. The Security and Privacy research group, in collaboration with the Banking and Capital Markets unit, has developed TrustedADM, a secure development life cycle methodology, that is being used across Infosys to ensure that all applications designed, developed and maintained by us for our clients or internal or subsidiaries are secure.

The e-commerce research group is working on the educational needs to meet the next-generation software development. A module on component based software development has been designed and developed and a curriculum offered to two pilot batches. The entire curriculum is based on Java EE technology and agile development. This group also manages the IBM Software Centre of Excellence and has developed several prototypes of IBM technologies to showcase implementation capabilities and solutions based on our methodology.

The 3D commerce research group is exploring if 3D social networking sites such as Second Life can be used to market and sell real-world products. Specifically, the 3D world may be better suited to selling physical items like large appliances than traditional browser-based e-commerce sites. The ability to view the item in 3D may provide a superior shopping experience.

The RFID &T Pervasive Solutions Practice focuses on business solutions that leverage the convergence of sensing and access technologies. The group has developed key Intellectual Property (covered under multiple patent filings) and a core platform that supports innovative applications across business domains. These solutions are offered as managed information services to global clients from industries such as gaming and entertainment, consumer retail, logistics, healthcare and manufacturing. The high-value solutions developed by the group include Smart Visual Merchandising, Value Chain Visibility and Shopping Trip 360 Degree.


Our efforts in R&TD have helped us offer new services to clients in the areas of Web 2.0, SaaS, Enterprise Architecture, IT Governance, etc. Based on the technology platforms developed by multiple research groups, we are creating client-focused business solutions. Our RED efforts have helped us win large deals in legacy modernization and collaboration across industry verticals.

Future plan of action

We will collaborate with leading national and international universities, product vendors and technology start-up companies with increasing focus. These collaborations will be leveraged toward the creation of platforms and solutions that enhance the GDM principles of automation, collaboration and assembly Our areas of research include software engineering, network and device convergence, grid computing, knowledge engineering, information management, and security and privacy.

Recognition of Infosys R&D

The Field Optimization Suite, jointly developed by us and British Telecom (BT), won the National Outsourcing Association (NOA) award for Innovative Outsourcing Project of the Year 2007.

BT Research and SETLabs, the companies' respective RF-zD divisions, worked in collaboration, utilizing their respective intellectual properties. The solution created and rolled out at the end of 2006 is now a fully automated resource management system that uses advanced intelligent algorithms to enhance a company's productivity by accurately forecasting, optimally planning and positioning a large field workforce to adapt to changing demands. Further, BT has signed a memorandum of understanding (MoU) with us to collaborate on research and innovation.

We partnered with Agricultural Co-operative Development International and Volunteers in Overseas Co-operative Assistance (ACDI / VOCA) to develop an information and communication technology (ICT)-enabled application that would improve efficiencies in the agro supply chain in India. The solution is built on our TruSync, a context-aware, clientserver solution designed for situations with limited or no network availability and allows for peer-to-peer (P2P) synchronization between field agents without connecting to a central server.

Expenditure on R&D in Rs. crore 2008 2007

Revenue expenditure 201 167

Capital expenditure - -

Total 201 167

R&D expenditure/total revenue 1.3% 1.3%

Foreign exchange earnings and outgo

Activities relating to exports, initiatives taken to increase exports, development of new export markets for products and services, and export plans

During the year, 98.6% of our revenues was derived from exports. We have established a substantial direct marketing network around the world, including North America, Europe and Asia Pacific. These offices are staffed with sales and marketing specialists, who sell our services to large, international clients.

Foreign exchange earned and used in Rs. crore 2008 2007

Earnings 14,490 12,156Outflow 6,788 5,653Net foreign exchange earnings (NFE) 7,702 6,503NFE/Earnings 53.2% 53.5%

For and on behalf of the Board of Directors

S. Gopalakrishnan S. D. ShibulalChief Executive Officer and Chief Operating Officer andManaging Director Director

BangaloreApril 15, 2008

Directors' responsibility statement

d) The directors' responsibility statement as required under Section 217 (2AA) of the Companies Act, 1956

The financial statements are prepared in conformance with the accounting standards issued by the institute of Chartered Accountants of India and the requirements of the Companies Act, 1956, to the extent applicable to us; and guidelines issued by the Securities and Exchange Board of India on the historical cost convention; as a going concern and on the accrual basis. There are no material departures from prescribed accounting standards in the adoption of the accounting standards. The accounting policies used in the preparation of the financial statements have been consistently applied except as otherwise stated in the notes on accounts.

The Board of Directors accepts responsibility for the integrity and objectivity of these financial statements. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the form and substance of transactions, and reasonably present our state of affairs and profits for the year. To ensure this, we have taken proper and sufficient care in implementing a system of internal control and accounting records; for safeguarding assets; and for preventing and detecting frauds as well as other irregularities; which are reviewed, evaluated and updated on an ongoing basis. Our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures have been followed. However, there are inherent limitations that should be recognized in weighing the assurances provided by any system of internal controls and accounts.

The financial statements have been audited by M/s. BSR &T Co., Chartered Accountants, and statutory auditors.

The audit committee meets periodically with the internal auditors and the statutory auditors to review the manner in which the auditors are discharging their responsibilities, and to discuss auditing, internal control and financial reporting issues. To ensure complete independence, the statutory auditors and the internal auditors have full and free access to the members of the audit committee to discuss any matter of substance for and on behalf of the Board of Directors

S. Gopalakrishnan S.D. ShibulalChief Executive Officer and Chief Operating Officer andManaging Director Director

BangaloreApril 15, 2008



The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956, guidelines issued by the Securities and Exchange Board of India (SEBI) and Generally Accepted Accounting Principles (GAAP) in India. Our Management accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, so that the financial statements reflect in a true and fair manner the form and substance of transactions, and reasonably present our state of affairs, profits and cash flows for the year.

A. Industry structure and developments

Changing economic and business conditions, rapid technological innovation, proliferation of the internet, and globalization are creating an increasingly competitive market environment that is driving corporations to transform the manner in which they operate.

Customers are increasingly demanding improved products and services with accelerated delivery times and at lower prices. To adequately address these needs, corporations are focusing on their core competencies and using out-sourced technology service providers to help improve productivity, develop new products, conduct research and development activities, reduce business risk, and manage operations more effectively.

The role of technology has evolved from supporting corporations to transforming them. The ability to design, develop, implement, and maintain advanced technology platforms and solutions to address business and customer needs has become a competitive advantage and a priority for corporations worldwide. Concurrently, the prevalence of multiple technology platforms and a greater emphasis on network security and redundancy have increased the complexity and cost of information technology (IT) systems, and have resulted in greater technology-related risks. The need for more dynamic technology solutions and the increased complexity, cost and risk associated with these technology platforms have created a growing need for specialists with experience in leveraging technology to help drive business strategy.

There is an increasing need for highly skilled technology professionals in the markets in which we operate. At the same time, corporations are reluctant to expand their internal IT departments and increase costs. These factors have increased corporations' reliance on their out-sourced technology service providers and are expected to continue to drive future growth for such services. Although there has been a slight slowdown in the purchase of IT services during 2008 due to the slowdown of the global economy, there continues to be significant growth in the purchase of IT services. According to a leading analyst firm, IT services and outsourcing purchases during 2008 will grow at 9% as compared to 12% during 2007.

Increasing trend towards offshore technology services

Outsourcing the development, management and ongoing maintenance of technology platforms and solutions has become very important. Corporations are increasingly turning to offshore technology service providers to meet their need for high quality, cost competitive technology solutions. As a result, offshore technology service providers have become mainstream in the industry and continue to grow in recognition and sophistication. The effective use of offshore technology services offers a variety of benefits, including lower total cost of ownership of IT infrastructure, lower labor costs, improved quality and innovation, faster delivery of technology solutions and more flexibility in scheduling. In addition, technology companies are also recognizing the benefits of offshore technology service providers in software research and development and related support functions, and are outsourcing a greater portion of these activities. The range of services delivered offshore is also increasing. A leading analyst firm has forecasted that outsourcing expenditure on services will increase from US $226 billion in 2006 to an estimated US $328 billion by 2011. During the same period, spending on services in the business process outsourcing (BPO) market is likely to grow from US $144 billion to an estimated US $234 billion.

The India advantage

India is recognized as the premier destination for offshore technology services. According to a factsheet published by NASSCOM in February 2008, IT services (excluding BPO, product development and engineering services) exports from India are expected to cross US $23 billion in fiscal 2008 and BPO exports from India are expected to cross US $10.9 billion.

There are several key factors contributing to the growth of IT and IT enabled Services (ITeS).

High qualify delivery: According to the Process Maturity Profile published by the Carnegie Mellon Software Engineering Institute in September 2007, approximately 250 Indian companies had acquired quality certifications with around 80 companies certified at SEI CMM Level 5 - higher than any other country in the world. SEI-CMM is the Carnegie Mellon Software Engineering Institute's Capability Maturity Model, which assesses the quality of organizations' management system processes and methodologies. Level 5 is the highest level of the CMM assessment.

Significant cost benefits: The NASSCOM Strategic Review 2007 suggests that India has a strong track record of delivering a significant cost advantage, with clients reporting savings of up to 25-50% over the original cost base.

Abundant skilled resources: India has a large and highly skilled English-speaking labor pool. According to NASSCOM, India produces approximately 3.1 million university and college graduates, including approximately 5,00,000 technical graduates, annually.

NASSCOM Strategic Review 2007 suggests that the large and growing pool of skilled professionals has been a key driver of the rapid growth in the Indian IT ITeS sector. NASSCOM says that India has the singlelargest pool of suitable offshore talent - accounting for 28% of the total suitable talent pool available across all offshore destinations and outpacing the share of the next closest destination by a factor of at least 2.5.

The factors listed above also make India the premier destination for other services such as ITeS, which we refer to as business process management. Industry analysts have observed that business process management services of leading offshore technology service providers have strong prospects for growth, given the providers' experience, proven track record and breadth of client relationships. According to a factsheet published by NASSCOM in February 2008, the Indian ITeS and business process outsourcing services export market was US $8.4 billion in fiscal 2007 and is estimated to be between US $10.5-11 billion in fiscal 2008.

While these advantages apply to many companies with offshore capabilities in India, we believe that there are additional factors critical to a successful, sustainable and scalable technology services business. These factors include the ability to:

* effectively integrate onsite and offshore execution capabilities to deliver seamless, scalable services

* increase depth and breadth of service offerings to provide a one-stop solution in an environment where corporations are increasingly reducing the number of technology services vendors they are using

* develop and maintain knowledge of a broad range of existing and emerging technologies

* demonstrate significant domain knowledge to understand business processes and requirements

* leverage in-house industry expertise to customize business solutions for clients

* attract and retain high quality technology professionals, and

* make strategic investments in human resources and physical infrastructure (or facilities) throughout the business cycle.

Evolution of technology outsourcing

The nature of technology outsourcing is changing. Historically, corporations either outsourced their technology requirements entirely or on a stand-alone, project-by-project basis. In an environment of rapid technological change, globalization and regulatory changes, the complete outsourcing model is often perceived to limit a corporation's operational flexibility and not fully deliver potential cost savings and efficiency benefits. Similarly, project-by-project outsourcing is also perceived to result in increased operational risk and co-ordination costs, and is seen as failing to fully leverage technology service providers' extensive capabilities. To address these issues, corporations are developing a more systematic approach to outsourcing that necessitates their technology service providers to develop specialized systems, processes and solutions along with cost-effective delivery capabilities.

Global Delivery Model (GDM)

Our Global Delivery Model allows us to produce where it is most cost-effective and sell services where it is most profitable. The GDM enables us to derive maximum benefit from:

* Access to our large pool of highly skilled technology professionals

* 24-hour execution capabilities across multiple time zones

* The ability to accelerate delivery times of large projects by simultaneously processing project components

* Physical and operational separation of client projects to provide enhanced security

* Cost competitiveness across geographical regions

* Built-in redundancy to ensure uninterrupted services, and

* A knowledge management system that enables us to re-use solutions where appropriate.

In a typical offshore development project, we assign a team of technology professionals to visit a client site and determine the scope and requirements of the project. Once the initial specifications of the project have been established, our project managers return to the relevant global development center to supervise a larger team of technology professionals dedicated to the development or implementation of the solution. Typically, a small team remains at the client site to manage project co-ordination and address changes in requirements as the project progresses. Teams return to the client site, when necessary, to ensure seamless integration. To the extent required, a dedicated team provides ongoing maintenance from our global development centers. The client's systems are linked to our facilities, enabling simultaneous processing in our global development centers. Our model ensures that project managers remain in control of execution throughout the life cycle of the project, regardless of the location.

For the past 17 years, we have successfully executed projects at our global development centers. We have 52 global development centers, of which 26 are located in India, 11 are in North America, 9 are in the Asia-Pacific region and 6 are in Europe. Our largest development centers are located in India.

Our quality control processes and programs are designed to minimize defects and ensure adherence to pre-determined project parameters. Additionally, software quality advisors help individual teams establish appropriate processes for projects, and adhere to multi-level testing plans. The project manager is responsible for tracking metrics, including actual effort spent versus initial estimates, project budgeting and estimating the remainder of efforts required on a project.

Our Global Delivery Model mitigates risks associated with providing offshore technology services to our clients. For our communication needs, we use multiple service providers and a mix of satellite, terrestrial and optical fiber links with alternate routing. In India, we rely on two telecommunications carriers to provide high-speed links inter-connecting our global development centers. Internationally, we rely on multiple satellite links to connect our Indian global development centers with network hubs in other parts of the world. Our significant investment in redundant infrastructure enables us to provide uninterrupted service to our clients. Our business continuity center in Mauritius enables us to transfer the execution of a portion of our business activities rapidly from our Indian global development centers to Mauritius, and is an example of our investment in redundant infrastructure.

End-to-end solutions

We provide comprehensive end-to-end business solutions that leverage technology. Our service offerings include custom application development, maintenance and production support, package enabled consulting and implementation, technology consulting and other solutions, including business process management and solutions, product engineering solutions, infrastructure maintenance services, operations and business process consulting, testing solutions, and systems integration services. These offerings are provided to clients across multiple industry verticals including banking and capital markets, communications, energy, manufacturing and retail. We also provide a core banking software solution, Finacle), and provide customization and implementation services around this solution.

We complement our industry expertise with specialist support for our clients. We also leverage our Software Engineering and Technology Labs (SETLabs) to create customized solutions for our clients. In addition, we continually evaluate and train our professionals in new technologies and methodologies. Finally, we ensure the integrity of our service delivery by utilizing a scalable, redundant and secure infrastructure.

We generally assume full project management responsibility in each of our solution offerings. We strictly adhere to our SEI-CMMI Level 5 internal quality and project management processes. Our knowledge management system enables us to leverage existing solutions across the organization, where appropriate. We have developed in-house tools for project management and software life cycle support. We also bring to bear our unique methodologies in our consulting practice to provide value added services to our clients. These processes, methodologies, knowledge management systems and tools reduce the overall cost to the client, and enhance the quality and speed of delivery

Our engagements generally include more than one of the solutions. Revenues attributable to custom application development, maintenance and production support, software re-engineering, package-enabled consulting and implementation and technology consulting services represented a majority of our total revenues in fiscal 2008.

Critical accounting policies

We consider the policies related to (a) use of estimates, (b) revenue recognition, and (c) income tax to be critical to an understanding of our financial statements as their application places the most significant demands on the Management's judgement, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Details of policies adopted by us have been provided in Schedule 23.1, Significant Accounting Policies, in the schedules to financial statements for the year ended March 31, 2008.

B. Financial condition

A summary of our financial position as at March 31, 2008 and 2007 is given below: in Rs. crore March 31, % March 31, % Growth 2008 2007 Sources of fundsShareholders' funds Share capital 286 2.1 286 2.6 - Reserves andsurplus 13,204 97.9 10,876 97.4 21.4 13,490 100.0 11,162 100.0 20.9

Application offundsFixed assetsOriginal cost 4,508 33.4 3,889 34.8 15.9 Depreciation (1,837) (13.6) (1,739) (15.6) 5.6

Net book value 2,671 19.8 2,150 19.2 24.2 Capital workinprogress 1,260 9.3 957 8.6 31.7 3,931 29.1 3,107 27.8 26.5

Investments 964 7.2 839 7.6 14.9

Deferred tax assets 99 0.7 79 0.7 25.3Current assets,loans andadvances Sundry debtors 3,093 22.9 2,292 20.5 34.9 Cash and bankbalances 6,429 47.7 5,470 49.0 17.5

Loans andadvances 2,705 20.1 1,199 10.7 125.6 12,227 90.7 8,961 80.3 36.4 Currentliabilities (1,483) (11.0) (1,162) (10.4) 27.6 Provisions (2,248) (16.7) (662) (5.9) 239.6 (3,731) (27.7) (1,824) (16.3) 104.6

Net current assets 8,496 63.0 7,137 63.9 19.0 13,490 100.0 11,162 100.0 20.9

Sources of funds

1. Share capital

At present, we have only one class of shares - equity shares of par value Rs. 5/- each.

Our authorized share capital is Rs. 300 crore, divided into 60 crore equity shares of Rs. 5/- each. The issued, subscribed and paid up capital as of March 31, 2008 and March 31, 2007 was Rs. 286 crore.

During the year, employees exercised 5,00,465 equity shares issued under the 1998 Stock Option Plan, and 2,85,431 equity shares issued under the 1999 Stock Option Plan. Consequently, the issued, subscribed and outstanding shares increased by 7,85,896 and share capital increased by Rs.0.39 crore. Details of options granted, outstanding and vested as of March 31, 2008 are given elsewhere in this report.

In fiscal 2007, we allotted bonus shares in the ratio of 1:1 resulting in an addition of 27,68,43,176 equity shares. The bonus issue resulted in an increase of paid up capital by Rs. 138 crore which was capitalized from general reserves.

The details of the increase are provided in the table below:

2008 2007 Equity shares Rs. Equity shares Rs. (No.) crore (No.) croreShare capital -beginning oftheyear 571209862 286 275554980 138

Add: Capitalizationof generalreserves forbonus issue - - 276843176 138

Add Shares issuedupon ESOPexerciseThe 1998 Plan 500465 - 2200938 1 The 1999 Plan 285431 - 16610768 9 Sub-total 785896 - 18811706 10

Share capital -end of the year 571995758 286 571209862 286

Our equity shares are currently listed in India on the NSE and BSE and the NASDAQ in the U.S. Our market capitalization as of March 31, 2008 was Rs. 82,362 crore, (previous year Rs. 1,15,307 crore) based on NSE price. The same was US $20.46 billion (previous year US $28.70 billion) based on NASDAQ price. As of March 31, 2008, the total number of shareholders on record was 5,55,562 and the total founder holding percentage was 16.52%.

2. Reserves and surplus

A summary of reserves and surplus is provided in the table below:

in Rs. crore 2008 2007

a. Capital reserve 6 6b. Share premium 2,851 2,768c. General reserve 3,705 3,258d. Profit and loss account 6,642 4,844

Total 13,204 10,876

a. Capital reserve

The balance as of March 31, 2008 amounted to Rs. 6 crore, same as in the previous year.

b. Share premium

A statement of movement in the share premium account is given below:

in Rs. crore 2008 2007

Balance-beginning of the year 2,768 1,543

Add: Premium on ESOP exercise 58 1,206 Income tax benefit arisingfrom ESOP exercise 25 19

Balance-end of the year 2,851 2,768

The addition to the share premium account of Rs. 58 crore during the year is on account of premium received on issue of 7,85,896 equity shares, on exercise of options under the 1998 and 1999 stock option plans.

The Finance Act, 2007 included Fringe Benefit Tax (FBT) on Employees Stock Option Plan. FBT liability crystallizes on the date of exercise of stock options. During the year ended March 31, 2008, 7,85,896 equity shares were issued pursuant to the exercise of stock options by employees under both the 1998 and 1999 stock option plans. FBT on exercise of stock options of Rs. 2 crore has been paid by us and subsequently recovered from the employees. Consequently, there is no impact on the profit and loss account.

An amount of Rs. 25 crore (Rs. 19 crore in the previous year) was credited to the share premium account arising due to tax benefits in overseas jurisdiction of deductions earned on exercise of employees stock options, in excess of compensation charged to the profit and loss account.

c. General reserves

A statement of movement in the general reserves is given below:

in Rs. crore 2008 2007

Balance -beginning of the year 3,258 3,015

Add: Transfer from P&TL account 447 378 Fair value of options issued inexchange for IBPO options - 12

Less: Gratuity transitional liability - (9) Capitalized for bonus issue - (138)

Balance-end of the year 3,705 3,258

An amount of Rs. 447 crore representing 10% of the profits for the year ended March 31, 2008 (previous year Rs. 378 crore) was transferred to the general reserves account from the profit and loss account.

Effective April 1, 2006, we adopted the revised accounting standard on employee benefits. Pursuant to the adoption, our transitional obligations amounted to Rs. 9 crore. As required by the standard, the obligation was recorded with the transfer to general reserves in fiscal 2007.

On July 15, 2006, we allotted bonus shares in the ratio of 1:1 resulting in an addition of 27,68,43,176 equity shares. The bonus issue resulted in an increase of paid-up capital by Rs. 138 crore which was capitalized from general reserve in fiscal 2007.

In January 2007, we initiated the purchase of outstanding options in Infosys BPO from its option holders. The option holders were given a choice to sell their options and/or swap Infosys BPO options for Infosys options at a swap ratio based on fair market value. Consequent to this proposal, we granted 1,51,933 Infosys options under the 1999 Plan valued at a fair value of Rs. 12 crore. Accordingly, the investment in Infosys BPO and the general reserves had increased by Rs. 12 crore in fiscal 2007.

d. Profit and loss account

The balance retained in the profit and loss account as of March 31, 2008 is Rs. 6,642 crore, after providing the interim and final dividend for the year of Rs. 758 crore and one-time special dividend of Rs. 1,144 crore and dividend tax of Rs. 323 crore thereon. The total amount of profits appropriated to dividend including dividend tax was Rs. 2,225 crore, as compared to Rs. 751 crore in the previous year.

Shareholder funds

The total shareholder funds increased to Rs. 13,490 crore as of March 31, 2008 from Rs. 11,162 crore as of the previous year end.

The book value per share increased to Rs. 235.84 as of March 31, 2008 compared to Rs. 195.41 as of the previous year-end.

Application of funds

3. Fixed assets

A statement of movement in fixed assets is given below:

in Rs. crore 2008 2007 Growth%

Land: Freehold 131 76 72.4

Leasehold 98 95 3.2

Buildings 1,953 1,471 32.8

Plant and machinery 823 760 8.3

Computer equipment 961 944 1.8

Furniture and fixtures 539 541 (0.4)

Vehicles 3 2 50.0

Gross block 4,508 3,889 15.9

Less: Accumulated depreciation (1,837) (1,739) 5.6

Net block 2,671 2,150 24.2

Add: Capital work-in-progress 1,260 957 31.7

Net fixed assets 3,931 3,107 26.5

Depreciationas % of revenues 3.5 3.6 as % of average gross block* 13.7 14.6

Accumulated depreciation as % of gross block* 42.9 46.8 * Excluding land

The details of built-up area and seats are provided in the table below: 2008 2007Built-up area (sq. ft. in million) Completed 16.48 11.96In progress 8.36 10.31

Seats (No.)

Completed 77,754 58,488In progress 26,881 32,967

a. Capital expenditure

We incurred an amount of Rs. 1,370 crore (Rs. 1,443 crore in the previous year) as capital expenditure comprising of additions to gross block of Rs. 1,067 crore and Rs. 303 crore on account of increase in capital work-in-progress. The entire capital expenditure was funded out of internal cash flows.

b. Additions to gross block

During the year, we added Rs. 1,067 crore to our gross block comprising Rs.189 crore for investment in computer equipment and the balance of Rs. 878 crore on infrastructure investment.

We invested Rs. 58 crore to acquire 471 acres of land at Chennai and Hyderabad.

Due to several new development centers being operationalized, details of which are provided elsewhere in this Annual Report, the expenditure on buildings, computer equipment, plant and machinery, furniture and fixtures and vehicles increased by Rs. 482 crore, Rs. 189 crore, Rs. 210 crore, Rs. 127 crore and Rs. 1 crore, respectively

During the previous year, we added Rs. 1,058 crore to our gross block, including investment in computer equipment of Rs. 249 crore and the balance of Rs. 809 crore on infrastructure investment.

c. Deductions to gross block

During the year, we deducted Rs. 448 crore (net book value of zero) from the gross block comprising Rs. 440 crore of retirement on assets, Rs. 7 crore on donation of computer systems and Rs. 1 crore on disposal of various assets. During the previous year, we retired/ transferred various assets with a gross block of Rs. 6 crore and Rs. 1 crore book value.

d. Capital expenditure commitments

We have a capital expenditure commitment of Rs. 600 crore, as of March 31, 2008 as compared to Rs. 655 crore as of March 31, 2007.

4. Investments

We make several strategic investments which are aimed at procuring business benefits for us. The details of investments as of March 31, 2008 and the movement in the investment account during the year is summarized in the table below: in Rs. croreCompany A B C D E F

Subsidiaries Infosys BPO Limited 637 22 - - 659 99.98

Infosys Technologies (China) Co. Limited 46 - - - 46 100.00

Infosys Technologies (Australia) Pty. Ltd. 66 - - - 66 100.00

Infosys Consulting, Inc. 90 81 - - 171 100.00

Infosys Technologies, S. de R. L. de C. V NA 22 - - 22 100.00

839 125 - - 964OthersOn Mobile Systems Inc., USA 9 - - 9 - M-Commerce Ventures Pte. Ltd., Singapore 2 - - 2 - 11 - - 11 11Less: Provision for investments (11) - - (11) (11)

Total 839 125 - - 964

A = March 31, 2007B = AdditionsC = Redeemed/written offD = Provisions E = March 31, 2008F = % of holding as at the year end

The revenues, net profit and net worth information relating to our subsidiaries are provided below:

in Rs. crore A B C D E F G H

Infosys BPO Limited - Consolidated 937 662 41.5 153 152 0.7 16.3 491

Infosys Technologies (China) Co. Limited 77 60 28.3 (7) (29) 75.9 (9.1) (17)

Infosys Technologies (Australia) Pty. Ltd. 556 446 24.7 101 71 42.3 18.2 228

Infosys Consulting, Inc. 246 213 15.5 (51) (111) 54.1 (20.7) (53)

Infosys Technologies, S. de R. L de C. V 3 NA - (7) NA - (233.3) 15

Total 1,819 1,381 31.7 189 83 127.7 10.4

A = Revenues 2008 B = Revenues 2007 C = Revenues Growth(%)D = Net Profit/(Loss) 2008E = Net Profit/(Loss) 2007 F = Net Profit/(Loss) Growth(%)G = Net Profit/(Loss) % of revenue for fiscal 2008 H = Net worth As of March 31, 2008

Infosys Consulting, Infosys China and Infosys Mexico are in the investment phase and this has resulted in the reported losses. The information relating to related party transactions with subsidiaries is given elsewhere in the report.

The details of employees in each of the subsidiaries is provided in the table below: No. 2008 2007

Infosys BPO Limited - Consolidated 16,295 11,226Infosys Technologies (China) Co. Limited 699 669Infosys Technologies (Australia) Pty. Ltd. 363 306Infosys Consulting, Inc. 265 209Infosys Technologies, S. de R. L de C. V 75 NA

Majority owned subsidiary

Infosys BPO Limited

We established Infosys BPO Limited as a majority owned and controlled subsidiary on April 3, 2002, to provide business process management services. Infosys BPO seeks to leverage the benefits of service delivery globalization, process redesign and technology to drive efficiency and cost effectiveness in customer business processes. The movement of investment in Infosys BPO is provided in the following table:

2008 2007 Shares (No.) Rs. Shares (No.) Rs. crore croreBalance-beginning ofthe year 3,34,61,902 637 2,44,99,993 25

Shares purchased fromIBPO employees 3,60,417 22 2,11,909 12

Shares purchased fromCiticorp - - 87,50,000 530

Purchase of unvestedoptions from IBPOemployees - - - 58

Options swap withIBPO employees - - - 12

Balance-end of 3,38,22,319 659 3,34,61,902 637the year

During the year ended March 31, 2008, we completed the purchase of 3,60,417 Infosys BPO shares from its employee shareholders, consequent to the forward share purchase agreement entered with them in February 2007. Following this, our holding in Infosys BPO is 99.98%.

Wholly-owned subsidiaries

Infosys Technologies (China) Co. Limited

On October 10, 2003, we setup a wholly-owned subsidiary in the People's Republic of China named Infosys Technologies (China) Co. Limited.

Infosys Technologies (Australia) Pty. Limited

On January 2, 2004, we acquired 100% of equity in Expert Information Services Pty Limited, Australia, and renamed the company as Infosys Technologies (Australia) Pty. Limited. The consideration comprised a payment in cash of Rs. 66 crore on conclusion and an earn-out on achieving financial conditions over a three-year period ending March 31, 2007. We paid Rs. 40 crore as earnout for the three year period ending March 31, 2007.

Infosys Consulting, Inc.

On April 8, 2004, we set up a wholly-owned subsidiary, Infosys Consulting, Inc., incorporated in Texas, USA, to add high-end consulting capabilities to our Global Delivery Model. During the year, an additional investment of US $20 million (Rs. 81 crore) was made in Infosys Consulting, Inc., to fund its operational requirements. The subsidiary is still in the investment phase and is expected to break even in the near future.

Infosys Technologies S. de R. L. de C. V., Mexico

During the year, we incorporated Infosys Technologies, S. de R. L. de C. V, a wholly-owned subsidiary in Mexico, to improve proximity to our North American clients. As of March 31, 2008, we had invested an aggregate of Mexican Pesos 60 million (Rs. 22 crore) in the subsidiary.

5. Deferred tax assets

We recorded deferred tax assets of Rs. 99 crore as of March 31, 2008 (Rs. 79 crore as of March 31, 2007). Deferred tax assets represent timing differences in the financial and tax books arising from depreciation on assets and provision for sundry debtors.

We assess the likelihood that our deferred tax assets will be recovered from future taxable income. We believe it is more likely than not that we will realize the benefits of these deductible differences.

6. Sundry debtors

Sundry debtors amount to Rs. 3,093 crore (net of provision for doubtful debts amounting to Rs. 40 crore) as of March 31, 2008, compared to Rs. 2,292 crore (net of provision for doubtful debts amounting to Rs. 22 crore) as of March 31, 2007. These debtors are considered good and realizable. Debtors are at 19.8% of revenues for the year ended March 31, 2008, compared to 17.4% for the previous year, representing a DSO (days sales outstanding) of 72 days and 64 days for the respective years. We collected an amount of Rs. 208 crore in the first week of April 2008. Including this, the DSO would have been 67 days as against the reported 72 days.

Our largest client constituted 21.4% of sundry debtors as of March 31, 2008. No single client constituted more than 10% of sundry debtors as of March 31, 2007.

The age profile of debtors is given below:

Days 2008 2007

0-30 58.3 58.531-60 29.1 36.761-90 3.9 2.191+ 8.7 2.7

100.0 100.0

Provisions are generally made for all debtors outstanding for more than 180 days as also for others, depending on the Management's perception of the risk. The need for provisions is assessed based on various factors, including collectability of specific dues, risk perceptions of the industry in which the customer operates and general economic factors which could affect the customer's ability to settle.

The movement in provisions for doubtful debts during the year is as follows:

in Rs. crore 2008 2007

Opening balance 22 10Add: Amount provided 42 24Less: Amount written-off 24 12Closing balance 40 22

Provision for bad and doubtful debts as a percentage of revenue is 0.27% in fiscal 2008 as against 0.18% in fiscal 2007.

The unbilled revenues as of March 31, 2008 and 2007 amounted to Rs. 472 crore and Rs. 312 crore respectively.

7. Cash and cash equivalents

The bank balances in India include both Rupee accounts and foreign currency accounts. The bank balances in overseas current accounts are maintained to meet the expenditure of the overseas branches and project-related expenditure overseas.

in Rs. crore 2008 2007

Cash balances - -

Bank balances in India

Current accounts 60 169

Deposit accounts 5,772 4,790

Foreign currency accounts (EEFC) 181 131 Unclaimed dividend account 2 2

Bank balances outside IndiaCurrent accounts 414 378

Total cash and bank balances 6,429 5,470

Deposits reported under loans and advances 1,260 140

Total cash and cash equivalents 7,689 5,610

Cash and equivalents/assets 57.0% 50.3%

Cash and equivalents/revenues 49.1% 42.7%

The deposit account represents deposits of maturity up to 365 days. Details of the same are given below:

in Rs. crore 2008 2007

ICICI Bank Limited 1,000 500State Bank of India 1,000 150Bank of Baroda 500 500Bank of India 500 500IDBI Bank 475 -HDFC Bank 450 -Corporation Bank 440 300Bank of Maharashtra 362 50Barclays Bank 280 -Axis Bank 250 300HSBC Bank 250 100The Bank of Nova Scotia 150 300Canara Bank 115 500Standard Chartered Bank - 500ABN AMRO Bank N.V - 350Citibank N.A. - 300Calyon Corporate Bank - 225Punjab National Bank - 175ING Vysya Bank Limited - 25BNP Paribas - 15

Total 5,772 4,790

Our treasury policy calls for investing surpluses with highly-rated companies, banks and financial institutions for maturities up to 365 days, as also with liquid mutual funds with a limit on investments in individual entities.

8. Loans and advances in Rs. crore

2008 2007Unsecured, considered goodLoans to subsidiary 32 22Advances Pre-paid expenses 27 28 Interest accrued but not due 186 51

Advance to Gratuity Fund Trust 12 - For supply of goods and renderingof services 10 3 Others 20 20

Sub-total 287 124

Unbilled revenues 472 312

Advance income tax 215 352

MAT credit entitlement 169 -

Loans and advances to employees 106 105

Electricity and other deposits 24 20

Rental deposits 11 10

Deposits with financial institutionsand body corporate' 1,421 261

Mark-to-market on options/forwardcontracts - 15

Total 2,705 1,199

* An amount of Rs. 161 crore (Rs. 121 crore as at March 31, 2007) deposited with the Life Insurance Corporation of India to settle leave obligations as andwhen they arise during the normal course of business. This amount is considered as restricted cash and hence not considered as 'cash and cash equivalents'.

During the year, we disbursed an amount of Rs. 10 crore (US $3 million) as loan to our wholly-owned subsidiary, Infosys Technologies (China) Co. Limited. The loan is repayable within five years from the date of disbursement at the discretion of the subsidiary. As of March 31, 2008, the outstanding loan was Rs. 32 crore (US $8 million).

Advances are primarily toward amounts paid in advance for value and services to be received in future. Unbilled revenues represent revenue recognized in relation to efforts incurred on fixed-price and time-andmaterial contracts not billed as of the year-end. Advance income tax represents payments made toward tax liability and also refund due for the previous years.

The details of advance income tax are given below:

in Rs. crore 2008 2007

Domestic tax 132 264Overseas tax 83 88

215 352

Pursuant to the changes in the Indian Income Tax Act, we have calculated our tax liability after considering Minimum Alternate Tax (MAT). This has not resulted in an additional tax expense as MAT can be set off against any future tax liability Accordingly, Rs. 169 crore is shown under 'Loans and advances' in the balance sheet as of March 31, 2008.

Loans to employees have remained the same compared to the previous year, despite an increase in the number of employees. This is because we have discontinued fresh disbursements under all the loan schemes except for personal loans and salary advances which we continue to provide primarily to employees in India who are not executive officers or directors. We also provide allowances for purchase of cars and houses for our middle-level managers. The details of these loans are given below:

in Rs. crore 2008 2007

Salary advances 64 63Soft loans 34 27Housing loans 8 13Other loans - 2

106 105

The salary advances represent advances to employees, both in India and abroad, which are recoverable within 12 months.

Electricity and other deposits represent electricity deposits, telephone deposits, insurance deposits and advances of a similar nature. The rent deposits are toward buildings taken on lease by us for our software development centers and marketing offices in cities across the world.

Deposits with financial institutions and corporate bodies represent surplus money deployed in the form of short-term deposits. The details of such deposits are given below: in Rs. crore 2008 2007

HDFC Limited 1,000 -

GE Capital Services India 260 140

1,260 140

Restricted deposits

Life Insurance Corporation of India* 161 121

1,421 261* For funding leave obligations of employees

9. Current liabilities

Sundry creditorsfor goods and services 36 23for accrued salaries and benefits 524 356

For other liabilities Provision for expenses 239 281 Retention monies 52 23 Withholding and other taxes 206 172 Mark-to-market on options/forward contracts 116 - Gratuity obligations-unamortized amount 33 - Due to option holders of IBPO - 2

Others 3 4

Sub-total 1,209 861

Advances received from clients 4 4

Unearned revenue 268 295

Unclaimed dividend 2 2

Total 1,483 1,162

Sundry creditors for accrued salaries and benefits include the provision for bonus and incentive payable to the staff and also our liability for leave encashment valued on an actuarial basis. The details are as follows:

in Rs. crore 2008 2007

Accrued salaries payable 46 28

Accrued bonus and incentive payable 329 208

Unavailed leaveas per actuarial valuation 149 120

524 356

Sundry creditors for other liabilities represent amounts accrued for various other operational expenses. Retention monies represent monies withheld on contractor payments pending final acceptance of their work. Withholding and other taxes payable represent local taxes payable in various countries in which we operate and the same will be paid in due course.

The mark-to-market on options / forward contracts as of March 31, 2008 were Rs. 116 crore. Pursuant to the Institute of Chartered Accountants of India (ICAI) announcement 'Accounting for Derivatives' on the early adoption of Accounting Standard AS 30 'Financial Instruments: Recognition and measurement', we have early adopted the standard for the year under review, to the extent that the adoption does not conflict with the existing mandatory accounting standards and other authoritative pronouncements, companies law and regulatory requirements. The details on outstanding options/forward contracts are provided in the notes to the financial statements.

Effective July 1, 2007, we revised the employee death benefits provided under the gratuity plan, and included all eligible employees under a consolidated term insurance cover. Accordingly, the obligations under the gratuity plan reduced by Rs. 37 crore, which is being amortized on a straight line basis to the profit and loss account over 10 years, representing the average future service period of employees. An amount of Rs. 4 crore was amortized during the year. The unamortized balance as of March 31, 2008 was Rs. 33 crore.

Advances received from clients denote monies received for the delivery of future services. Unearned revenue consists primarily of advance client billing on fixed-price, and fixed-time frame contracts for which related costs were not yet incurred. Unclaimed dividends represent dividends paid, but not encashed by shareholders, and are represented by a bank balance of the equivalent amount.

10. Provisions in Rs. crore 2008 2007

Proposed dividend 1,559 371Tax on dividend 265 63Income taxes 381 207Post-sales client support 43 21

2,248 662

Proposed dividend represents the final dividend, including special dividend, we recommended to the shareholders. Upon approval by the shareholders, this will be paid after the Annual General Meeting. Provision for tax on dividend, including special dividend, denotes taxes payable on dividends declared for the year.

Provisions for taxation represent estimated income tax liabilities, both in India and abroad. The details are as follows:

in Rs. crore 2008 2007

Domestic tax 72 48Overseas tax 309 159

381 207

The provision for post-sales client support is toward likely expenses for providing post-sales client support on fixed-price contracts.

11. Net current assets

Net current assets as of March 31, 2008 were Rs. 8,496 crore, compared to Rs. 7,137 crore in the previous year. The current ratio was 3.28 as of March 31, 2008 as compared to 4.91 in the previous year.

12. Contingent liabilities

The statement of capital commitments and contingent liabilities as of March 31, 2008 and 2007 are given below:

in Rs. crore 2008 2007Estimated amount of unexecutedcapital contracts (net of advancesand deposits) 600 655

Outstanding guarantees andcounter guarantees 2 2

Claims against the Company, notacknowledged as debts 3 15

Forward contracts outstanding 2,148 770

Options contract outstanding 508 1,158

Lease obligations 140 168

As of March 31, 2008, our net foreign currency exposure that is not hedged by a derivative instrument or otherwise is Nil (Rs. 995 crore as at March 31, 2007).

C. Results of operations

Summary of financial results for the year ended March 31, 2008 and 2007 is given below:

in Rs. crore 2008 % 2007 % Growth

Income: Software services 15,051 96.2 12,611 95.9 19.4Products 597 3.8 538 4.1 11.0Total income 15,648 100.0 13,149 100.0 19.0 Software developmentexpenses 8,876 56.7 7,278 55.4 22.0

Gross profit 6,772 43.3 5,871 44.6 15.4

Selling and marketingexpenses 730 4.7 719 5.5 1.5

General andadministration expenses 1,079 6.9 927 7.0 16.4

Operating profit (PBIDTA) 4,963 31.7 4,225 32.1 17.5 Interest - - - - - Depreciation 546 3.5 469 3.6 16.4

Operating profit afterinterest and depreciation 4,417 28.2 3,756 28.5 17.6 Other income, net 683 4.4 375 2.9 82.1

Provision forinvestments - - 2 - -

Profit before tax andexceptional items 5,100 32.6 4,129 31.4 23.5

Provision for tax* 630 4.0 352 2.7 79.0

Net profit after tax before exceptional items 4,470 28.6 3,777 28.7 18.3 Exceptional items, netoftaxes - - 6 0.1 -

Net profit after tax and exceptional items 4,470 28.6 3,783 28.8 18.2

* Includes a reversal of tax amounting to Rs. 121 crore, and Rs. 125 crore for the year ended March 31, 2008 and March 31, 2007 respectively.

Quarterly results of operations

Summary of quarterly results for the year ended March 31, 2008 is given below: in Rs. crore

Q1 Q2 Q3 Q4 FY08 FY08 FY08 FY08

Income 3,551 3,862 3,999 4,236

Gross profit 1,440 1,689 1,780 1,863

Operating profit (PBIDTA) 1,010 1,242 1,327 1,384

Net profit* 1,028 1,074 1,186 1,182

Gross profit % 40.6 43.7 44.5 44.0

Net profit % 28.9 27.8 29.7 27.9 Net profit for Q1, Q3 and Q4 of fiscal 2008 includes a reversal of tax provisions amounting to Rs. 51 crore, Rs. 50 crore and Rs. 20 crore respectively.

1. Income

The income for the year ended March 31, 2008 grew by 34.1% in US Dollar terms. However, income in Rupee terms grew by 19% on account of a 11.2% appreciation of the Rupee against the US Dollar during the year.

2008 2007 % change

Income (US $ million) 3,912 2,918 34.1Average US $ Rupee rate (Rs.) 40.00 45.06 (11.2)Income (Rs. crore) 15,648 13,149 19.0

Inconstant Dollar terms (considering the average rate of fiscal 2007), the income in Rupee terms for fiscal 2008 was lower by Rs. 1,979 crore.

Income from software services and products is as follows:

in Rs. crore 2008 % 2007 % Growth %

Overseas 15,429 98.6 12,935 98.4 19.3Domestic 219 1.4 214 1.6 2.3

15,648 100.0 13,149 100.0 19.0

Our revenues are generated primarily on fixed-time frame or time-and-material basis. Revenue from software services on fixed-price and fixed-time frame contracts are recognized as per the proportionatecompletion method. On time-and-material contracts, revenue is recognized as the related services are rendered. Revenue from the sale of user licenses for software applications is recognized on transfer of the title in the user license, except in multiple arrangement contracts, where revenue is recognized as per the proportionate-completion method.

The segmentation of software services by project type is as follows:

in % 2008 2007

Fixed price 33.0 28.0Time-and-material 67.0 72.0

100.0 100.0

Our revenues are also segmented into onsite and offshore revenues. Onsite revenues are for those services which are performed at client sites as part of software projects, while offshore revenues are for services which are performed at our software development centers located in India.

The segmentation of revenues by location (including product revenue) is as follows: in % 2008 2007

Onsite 50.9 51.7Offshore 49.1 48.3

100.0 100.0

The services performed onsite typically generate higher revenues per-capita, but at lower gross margins in percentage as compared to the services performed at our own facilities. Therefore, any increase in the onsite effort impacts our margins. The details of effort mix for software services and products in person months are as follows:

in % 2008 2007

Onsite 29.8 30.1Offshore 70.2 69.9

100.0 100.0

The growth in software services and product revenues is due to an all-round growth in various segments of the business mix and is mainly due to growth in business volumes.

The details of the same are given below:

2008 2007Income (in Rs. crore) Software services 15,051 12,611Software products 597 538 15,648 13,145Person months Software services Onsite 1,63,665 1,29,725Offshore 3,52,323 2,74,985Billed-total 5,15,988 4,04,718Software products 33,373 26,517Non-billable 1,61,504 1,24,212Training 63,606 64,885

Sub-total 7,74,471 6,20,336 Support 36,502 32,190 Total 8,10,973 6,52,526

Increase in billed person months Onsite 33,936 36,952% change 26.2 39.8Offshore 77,334 69,316% change 28.2 33.7 Total 1,11,270 1,06,268 % change 27.5 35.6Support/total (%) 4.5 4.5

Software services

During the year, the volumes grew by 27.5% compared to 35.6% in th previous year. The onsite and offshore volume growth were 26.2% an 28.2% during the year, compared to 39.8% and 33.7% in the previou year. In US Dollar terms, onsite per capita revenues increased by 4.30, during the year, offshore per capita revenues increased by 7.2%, an blended per capita revenues increased by 5.3%. During the previou year, onsite per capita revenues increased by 6.4%, offshore per capit revenues increased by 2.4% and blended per capita revenues increase by 5.5% in US Dollar terms.

Details of geographical and business segmentation of revenues an client concentration are provided elsewhere in this report.

Software products

The revenues from software products grew 11% compared to 50.70, in the previous year. Of the software products revenue, 71.4% cam from exports, compared to 67.4% in the previous year.

2. Expenditure

2.1 Software development expenses

in Rs. crore

2008 % 2007 % Growth

Revenues 15,648 100.0 13,149 100.00 19.0

Software developmentexpenses

Salaries and bonus 7,017 44.8 5,640 42.9 24.9Technicalsub-contractors 975 6.2 864 6.6 12.5 Overseas travel expenses 431 2.8 392 3.0 9.5 Cost of softwarepackages 238 1.5 217 1.6 9.7 Communicationexpenses 55 0.4 52 0.4 5.8 Post-sales customersupport 46 0.3 12 0.1 283.3 Other expenses 114 0.7 101 0.8 12.5

Total 8,876 56.7 7,278 55.4 22.0

Employee costs consist of salaries paid to employees in India and include overseas staff expenses. The total software professionals person-months increased to 7,74,471 for the year ended March 31, 2008 from 6,20,336 person-months during the previous year, an increase of 24.8%. Of this, the onsite and offshore billed person months (including software products) are 1,63,665 and 3,85,696 for the year ended March 31, 2008, as compared to 1,29,729 and 3,01,506 for the previous year. The non-billable and trainees person-months were 2,25,110 and 1,89,101 during the current and previous year respectively. The non-billable and trainees person-months were 29.1 % and 30.5% of the total software professional person-months for the current and previous year respectively. We added 22,671 employees (gross) and 13,659 employees (net) during the year as compared to 22,567 employees (gross) and 15,173 employees (net) during the previous year.

The utilization rates of billable employees for the year ended March 31, are as below: in % 2008 2007

Including trainees 70.9 69.5Excluding trainees 77.3 77.6

We incurred software development expenses at 56.7% of revenues, compared to 55.4% during the previous year. The cost of sub-contractors includes Rs. 773 crore toward purchase of services from related parties, primarily subsidiaries in fiscal 2008, as against Rs. 633 crore in the previous fiscal. The details of such related party transactions are available in notes to accounts. The balance amount is toward availing the services of external consultants to meet mismatch in certain skill sets that are required in various projects. We continue to use these consultants on a need basis.

During the year ended March 31, 2008, we voluntarily settled with the California Division of Labor Standards Enforcement toward possible overtime payment to certain employees in California, USA, for a total amount of Rs. 102 crore.

We recorded health insurance liabilities based on the maximum individual claimable amounts by employees. During the year, we completed reconciliation of amounts actually claimed by employees to date, including past years, with the aggregate amount of recorded liability, and the net excess provision of Rs. 71 crore was written back.

The overseas travel expenses, representing cost of travel abroad for software development, constituted approximately 2.8% and 3.0% of total revenue for the years ended March 31, 2008 and 2007. Overseas travel expenses include visa charges of Rs. 133 crore (0.8% of revenues) for the year, compared to Rs. 109 crore (0.8% revenues) in the previous year.

Cost of software packages represents the cost of software packages and tools procured for our internal use for enhancing the quality of our services and also for meeting the needs of software development, and includes software procured from third parties for resale with our banking product. The cost of software packages was 1.5% and 1.6% of the revenues for the year ending March 31, 2008 and 2007. Our accounting policy is to charge such purchases to the profit and loss accounts in the year of purchase.

A major part of our revenues come from offshore software development. This involves the large-scale use of technological connectivity in order to be online with clients. The communication expenses represent approximately 0.4% of revenues for the years ended March 31, 2008 and 2007, respectively.

The provision for post-sale customer support was Rs. 46 crore (0.3% of revenue) and Rs. 12 crore (0.1% of revenue) for the year ended March 31, 2008 and 2007, respectively.

Other expenses representing staff welfare, computer maintenance, consumables and rent have reduced to 0.7% of revenues during the year from 0.8% in the previous year.

2.2 Gross profit

The gross profit during the year was Rs. 6,772 crore representing 43.3% of revenues compared to Rs. 5,871 crore representing 44.6% of revenues in the previous year.

2.3 Selling and marketing expenses

We incurred selling and marketing expenses at 4.7% of our total revenues, compared to 5.5% during the previous year.

in Rs. crore 2008 % 2007 % Growth

Revenues 15,648 100.0 13,149 100.0 19.0Selling andmarketing expenses Salaries and bonus 506 3.2 447 3.4 13.2

Overseas travelexpenses 86 0.6 94 0.7 (8.5) Brand buildingand marketingexpenses 70 0.5 94 0.7 (25.5)

Commissioncharges 14 0.1 24 0.2 (41.7) Professionalcharges 18 0.1 23 0.2 (21.7) Others 36 0.2 37 0.3 (2.7)

Total 730 4.7 719 5.5 1.5

Employee costs consist of salaries paid to sales and marketing employees and include bonus payments. The number of sales and marketing personnel increased from 486 as of March 31, 2007 to 543 as of March 31, 2008.

Brand building expenses include expenses incurred for participation in various seminars and exhibitions, both in India and abroad, various sales and marketing events organized by us, and other promotional expenses incurred on advertisement and sales. We added 170 new customers as compared to 160 during the previous year. Commission charges primarily consist of expenses incurred by Finacle) with regard to agents' fees paid for sourcing business from international markets. It also includes commission paid for software service revenues derived from overseas markets. Professional charges primarily relate to payments made to PR agencies, legal charges, translation charges, etc.

2.4 General and administration expenses

We incurred general and administration expenses amounting to 6.9% of our total revenues, compared to 7.1% during the previous year.

in Rs. crore 2008 % 2007 % Growth

Revenues 15,648 100.0 13,149 100.0 19.0

General andadministration expensesSalaries and bonus 233 1.5 183 1.4 27.3 Professional charges 167 1.1 137 1.0 21.9 Telephone charges 117 0.7 106 0.8 10.4 Office maintenance 120 0.8 95 0.7 26.3 Power and fuel 106 0.7 88 0.7 20.5 Travel and conveyance 92 0.6 85 0.7 8.3 Repairs to building,plant and machinery 40 0.2 38 0.3 5.3 Rent 15 0.1 14 0.1 7.1 Provision for bad anddoubtful debts 42 0.3 24 0.2 0.8 Others 147 0.9 157 1.2 (6.4)

Total 1,079 6.9 927 7.1 16.4

Employee costs increased as the number of administration personnel increased from 2,408 as of March 31, 2007 to 2,691 as of March 31, 2008. Professional charges increased due to increased use of service providers. These charges include fees paid for availing services such as tax consultancy, US GAAP audit, SOX consultancy, recruitment and training, and legal charges. Expenses on telephone charges, office maintenance, power and fuel, travel and conveyance, repairs to buildings, plant and machinery, and rent increased due to increased business activity. Other expenses (a grouping of many expenses) have reduced to Rs. 147 crore (0.9% of revenue) for the year ended March 31, 2008 from Rs. 157 crore (1.2% of revenue) in the previous year.

3. Operating profits

We earned an operating profit (PBIDTA) of Rs. 4,963 crore, representing 31.7% of total revenues compared to Rs. 4,225 crore, representing 32.1% of total revenues, during the previous year.

4. Interest

No interest expense was incurred during the year ended March 31, 2008 and 2007 as we continued to be debt-free.

5. Depreciation

We provided Rs. 546 crore and Rs. 469 crore toward depreciation for the years ended March 31, 2008 and 2007, representing 3.5% and 3.6% of total revenues. The depreciation for the years ended March 31, 2008 and 2007 includes an amount of Rs. 16 crore and Rs. 26 crore, toward 100% depreciation on assets costing less than Rs. 5,000 each. The depreciation as a percentage of average gross block (excluding land) is 13.7% and 14.6% for the years ended March 31, 2008 and 2007.

6. Other income, net

The details of other income for fiscal 2008 and 2007 are given below:

in Rs. crore 2008 2007

Interest-bank deposits and others 650 182Dividends from mutual funds 4 116Miscellaneous income 24 35Exchange differences 5 42

Total 683 375

Our treasury policy allows us to invest in short-term funds with maturity up to 365 days, of certain size with a limit on individual funds. The average yield on investible surplus calculated on monthly average is given below:

in %Average yield 2008 2007

Deposits* 9.5 8.8Mutual funds 7.9 6.1Total - Deposits and mutual funds 9.5 7.4

* Subject to tax

We use foreign exchange forward contracts and options to hedge our exposure to movements in foreign exchange rates. The use of these foreign exchange forward contracts and options reduces the risk or cost to us. We do not use the foreign exchange forward contracts or options for trading or speculation purposes.

Pursuant to the Institute of Chartered Accountants of India (ICAI) announcement 'Accounting for Derivatives' on the early adoption of Accounting Standard AS 30 'Financial Instruments: Recognition and measurement', we have early adopted the standard for the year under review, to the extent that the adoption does not conflict with the existing mandatory accounting standards and other authoritative pronouncements, companies law and regulatory requirements.

The details of foreign exchange gain/(losses) are as follows:

in Rs. crore 2008 2007

Transaction and translation losses (98) (21)Option/forward contracts - gains/(losses) 103 63Net 5 42

The composition of currency wise revenues for fiscal 2008 and 2007 are given below:

Currency 2008 (%) 2007 (%)

US Dollar (US $) 70.7 73.7UK Pound (GBP) 14.1 11.6Euro (EUR) 5.7 4.9Australian Dollar (AUD) 4.6 4.9Others 4.9 4.9

Total 100.0 100.0

The average and period-end rates for various currencies are given below:

US $ GBP FUR AUDAverage rate - FY 08 40.00 80.52 57.24 35.01- FY 07 45.06 86.00 58.29 34.73Depreciation/ (appreciation) (11.2%) (6.4%) (1.8%) 0.8%

Period end rate - FY 08 40.02 79.46 63.25 36.55- FY 07 43.10 84.84 57.64 34.93Depreciation /(appreciation) (7.1%) (6.3%) 9.7% 4.6%

The details of outstanding option/forward contracts as of March 31, 2008 is given below:

Derivatives US $ (Mn) Rs. crore FUR (Mn) Rs. crore

Forward contracts 521 2,085 10 63Option contractsRange barrier 100 400 - -Euro accelerator - - 12 76Euro forward - - 5 32

Total 621 2,485 27 171

7. Sensitivity to rupee movement

Every 1% movement in the Rupee against the US Dollar has an impact of approximately 50 basis points on operating margins.

8. Provision for tax

We have provided for our tax liability both in India and overseas. Pursuant to the amendments in the Indian Income tax Act, 1961, we have calculated our tax liability after considering Minimum Alternate Tax (MAT). The MAT liability can be carried forward and set off against the future tax liabilities. The profits attributable to operations under the Software Technology Park (STP) Scheme, are exempted from income tax for a consecutive period of 10 years from the financial year in which the unit starts producing computer software, or March 31, 2009, whichever is earlier.

On April 29, 2008, the Finance Minister of India announced that the Government of India proposed to extend the availability of the 10 year tax holiday by a period of one year such that the tax holiday will be available until the earlier of fiscal year 2010 or 10 years after the commencement of a company's undertaking, although such extension is not yet effective.

The details of the operationalization of various software development centers and the year up to which the deduction under the Software Technology Park Scheme is available, are provided here:

Software Technology Year of Tax exemptionPark commencement claimed available from up toBangalore, FY 1995 FY 1997 FY 2004

Electronics City

Mangalore 1996 1999 2005

Pune 1997 1999 2006

Bhubaneswar 1997 1999 2006

Chennai 1997 1999 2006

Bangalore, Phase I,Electronics City 1999 1999 2008

Bangalore, Phase II,Electronics City 2000 2000 2009

Pune, Hinjawadi 2000 2000 2009

Mysore 2000 2000 2009

Hyderabad 2000 2000 2009

Mohali 2000 2000 2009

Chennai,Sholinganallur 2001 2001 2009

Bhubaneswar, Konark 2001 2001 2009

Mangalore, Mangala 2001 2001 2009

Thiruvananthapuram 2004 2004 2009

Details about SEZs

During the financial year 2007-08, two more Special Economic Zones (SEZs) at Pune and Mangalore, with an approved area of about 77.82 acres and 309 acres respectively, commenced production. The SEZ units came into existence under the new Special Economic Zones Act, 2005 (the SEZ Act').

As per the SEZ Act, the unit will be eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50% of such profits or gains for a further five years. Certain tax benefits are also available for a further five years, subject to the unit meeting defined conditions.

Other fiscal benefits, including indirect tax waivers, are being extended for setting up, operating and maintaining the unit.

The details of the operationalization of various software development centers and the year up to which the deduction under the SEZ Scheme is available, are provided below:

Software Technology Year of Claimed AvailablePark commencement from up to

Chennai, Mahindra City FY 2006 FY 2006 FY 2020Chandigarh 2007 2007 2021Mangalore 2008 2008 2022Pune 2008 2008 2022

For the current year, approximately 90% of our revenues came from STP operations, 6% of revenues came from SEZ operations and 4% of our revenues are subjective full tax in India. We pay taxes in various countries, in which we operate, on the income that is sourced to those countries. The details of provision for taxes are as follows:

in Rs. crore 2008 2007

Overseas tax 305 205Domestic tax 514 170

819 375

MAT credit (169) -Deferred taxes (20) (23)

630 352

Tax provision for the year ended March 31, 2008 and 2007 includes a reversal of Rs. 121 crore and Rs. 125 crore respectively for liability no longer required for taxes payable in various overseas jurisdictions. The details of effective tax rates are provided in the table below:

in %

Effective tax rate 2008 2007

As reported 12.4 8.5Excluding tax reversal 14.7 11.6

9. Net profit before exceptional items

Our net profit, before exceptional items, grew by 18.3% to Rs. 4,470 crore for the year ended March 31, 2008 from Rs.3,777 crore in the previous year. This represents 28.6% and 28.8% of total revenue.

Excluding the tax reversals, the net profit before exceptional items grew by 19.1% to Rs. 4,349 crore and Rs. 3,652 crore for the years ended March 31, 2008 and 2007. This represents 27.8% of total revenue for the years ended March 31, 2008 and 2007.

10. Exceptional items

There were no exceptional items during the year ended March 31, 2008. During the previous year, we received the balance amount of Rs. 5 crore on fulfillment of the Escrow obligations on the sale of shares in Yantra Corporation. Since the carrying value of the investment was nil, the entire proceeds of Rs. 5 crore (net of taxes, as applicable) had been recognized in the profit and loss account as an exceptional item. Further, we received Rs. 1 crore from CiDRA Corporation toward redemption of shares on recapitalization.

11. Net profit after exceptional items

Our net profit, after exceptional items, grew by 18.2% to Rs. 4,470 crore (28.6% of revenues) from Rs. 3,783 crore (28.8% of revenues).

Excluding the tax reversals, the net profit after exceptional items grew by 18.9% to Rs. 4,349 crore (27.8% of revenues) from Rs. 3,658 crore (27.8% of revenues).

12. Earnings Per Share (EPS)

Our basic EPS before exceptional items grew by 15.4% during the year to Rs.78.24 per share from Rs. 67.82 per share in the previous year.

Our basic EPS after exceptional items grew by 15.2% during the year to Rs.78.24 per share from Rs. 67.93 per share in the previous year.

Excluding the tax reversals, the basic EPS before exceptional items grew by 16.1% to Rs. 76.12 per share from Rs. 65.58 per share for the years ended March 31, 2008 and 2007.

The outstanding shares used in computing basic EPS increased from 55,68,52,339 for the year ended March 31, 2007 to 57,13,98,340 for the year ended March 31, 2008, a dilution of 2.6%. The dilution was primarily on account of exercise of shares issued under the ESOP schemes. Details of diluted EPS are provided elsewhere in this report.

13. Segmental profitability

Our operations predominantly relate to providing end-to-end business solutions that leverage technology thereby enabling clients to enhance business performance, delivered to customers globally operating in various industry segments. Accordingly, revenues represented along industry classes comprise the primary basis of segmental information set out in these financial statements. Secondary segmental reporting is performed on the basis of the geographical location of customers.

The income and operating income by industry and geographical segments are provided in this section.

Industry segments in Rs. crore

Financial Manufac- Telecom Retail Others Total services turingSegmental revenues2008 5,706 2,291 3,215 1,945 2,491 15,6482007 4,951 1,805 2,409 1,386 2,598 13,149 Growth % 15.3 26.9 33.5 40.3 (4.1) 19.0

Segmental operating income

2008 1,856 691 1,010 624 782 4,9632007 1,568 584 788 450 835 4,225Growth % 18.4 18.3 28.2 38.7 (6.3) 17.5Segmental operating profit (%)

2008 32.5 30.2 31.4 32.1 31.4 31.72007 31.7 32.4 32.7 32.5 32.1 32.1

Geographical segments in Rs. crore

North Europe India Rest Total America of the worldSegmental revenues

2008 9,873 4,207 219 1,349 15,6482007 8,395 3,393 214 1,147 13,149Growth % 17.6 24.0 2.3 17.6 19.0

Segmental operating income

2008 3,099 1,489 117 258 4,9632007 2,649 1,226 108 242 4,225Growth % 17.0 21.5 8.3 6.6 17.5

Segmental operating profit (%)

2008 31.4 35.4 53.4 19.1 31.72007 31.6 36.1 50.5 21.1 32.1

14. Liquidity Our growth has been financed largely through cash generated from operations, and to a lesser extent, from the proceeds of equity issues. in Rs. crore 2008 2007Liquidity

Cash and cash equivalents 7,689 5,610Net increase in cash and cashequivalents 2,079 1,856Current assets 12,227 8,961Net current assets 8,496 7,137

Cash flows Operating 3,816 3,267Investing (978) (1,091)Financing (777) (316)Capital expenditure 1,370 1,443Investment in subsidiaries 127 635Dividends including dividend tax 835 1,532

Our policy is to earn a minimum return of twice the cost of capital on average capital employed, and thrice the cost of capital on average invested capital. The current estimated cost of capital is 13.3%. At present, we earn 41.4% on average capital employed and 71.1% on average invested capital. We aim to maintain adequate cash balances to meet our strategic objectives while earning adequate returns. Our treasury policy calls for investing only in highly rated banks, financial institutions and companies for maturities up to 365 days with a limit for individual entities and also liquid mutual funds.

Our current financial policy is to pay dividends up to 20% of net profits. The Board has decided to increase the dividend payout ratio to up to 30% of net profits, effective fiscal 2009. Our payout ratios during the year ended March 31, 2008, 2007 and 2006 were 19.8%, 19.9% and 19.4% respectively. In addition, a special dividend of Rs. 1,144 crore was declared (Rs. 1,338 crore including dividend tax) during the financial year ended March 31, 2008, which is subject to approval by shareholders in the ensuing AGM.

15. Stock option plans

1998 Employee Stock Option Plan (1998 Plan)

Pursuant to the resolutions approved by the shareholders in the Extraordinary General Meeting held on January 6, 1999, we put in place an ADS-linked stock option plan termed as the '1998 Stock Option Plan'. The compensation committee of the Board administers the 1998 plan. The Government of India has approved the 1998 Plan, subject to a limit of 1,17,60,000 equity shares of par value of Rs. 5/each, representing 1,17,60,000 ADSs to be issued under the plan. The plan is effective for a period of 10 years from the date of its adoption by the Board.

The details of the grants made and options forfeited & expired (adjusted for stock-split, as applicable) under the 1998 Plan are provided below:

Options forfeited & expired Employees (No.) ADSs (No.)

January 2008 7 13,280February 42 37,180March 2 2,752

51 53,212

Note: No options were granted durittg focal 2008.

During the year, 5,00,465 options issued under the 1998 Plan were exercised, and the remaining ADS options unexercised and outstanding as at March 31, 2008 were 15,30,447 (equivalent to 15,30,447 equity shares). Vested ADSs as of March 31, 2008 were 15,30,447 (equivalent to 15,30,447 equity shares).

Details of the number of options granted and exercised under the 1998 Plan are given below:

Granted ExercisedFiscal Employees Options Employees Options (No.) (No.) (No.) (No.)

1999 29 17,04,000 32 -2000 58 11,77,200 5 95,2002001 705 38,59,360 - 49,7362002 476 36,34,000 - 2,23,8642003 223 23,20,800 120 3,58,1602004 39 3,83,600 309 10,35,4802005 - - 562 11,71,6002006 - - 531 13,71,4042007 - - 1,263 22,91,2132008 - - 234 5,00,465

1,530 1,30,78,960 3,056 70,97,122

1999 Employee Stock Option Plan (1999 Plan)

The shareholders approved the 1999 Plan in June 1999, which provides for the issue of 5,28,00,000 equity shares to employees. The 1999 Plan is administered by the compensation committee of the Board. Under the 1999 Plan, options were issued to employees at an exercise price not less than the fair market value, i.e. the closing price of the Company's shares on the stock exchange where there is the highest trading volume on the date of grant and, if the shares are not traded on that day, the closing price on the next trading day. Options under this plan may be granted to employees at less than the fair market value only if specifically approved by the members of the Company in a general meeting.

The details of the grants made and forfeited &T expired (adjusted for stock-split, as applicable) under the 1999 Plan are provided below:

Options forfeited & expired Employees Options (No.) (No.)

April 2007 3 11,350May 6 3,225June 4 20,370July 7 21,899August 3 7,091September 1 2,687October 7 3,703November 1 526December 1 248January 2008 105 34,777February 13 8,173March 10 3,667

161 1,17,716Note: No options were granted during the fiscal 2008.

During the year, 2,85,431 options issued under the 1999 plan were exercised, and the remaining options unexercised and outstanding as at March 31, 2008 were 14,94,693. Vested options as at March 31, 2008 were 10,89,041 (includes 7,602 options granted to external directors).

Details of the number of options granted and exercised under the 1999 Plan are given below:

Granted ExercisedFiscal Employees Options Employees Options (No.) (No.) (No.) (No.)19992000 1,124 81,16,000 22 -2001 8,206 1,56,62,640 - 9,6002002 5,862 1,64,04,000 - 2402003 3,008 49,34,800 296 97,4242004 595 15,42,400 2,651 21,48,3442005 - - 10,581 68,41,0502006 - - 16,269 85,97,4582007 288 6,38,761 30,795 1,78,08,6892008 - - 710 2,85,431

19,083 4,72,98,601 61,324 3,57,88,236

Note: Count of employees does not include exercises made by external directors.

The options movement under both the 1998 and 1999 Stock Option Plans as of March 31, 2008 are as follows:

Options (No.)Granted -Exercised 7,85,896Forfeited 1,70,928Outstanding 30,25,140Vested 26,19,488

Employee stock compensation under SFAS 123

Statement of Financial Accounting Standards 123 (SFAS 123), Accounting for Stock Based Compensation under US GAAP, requires the pro forma disclosure of the impact of the fair value method of accounting for employee stock valuation in the financial statements. The fair value of a stock option is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock and the expected dividends on it, and the risk-free interest rate over the expected life of the option. Applying the fair value based method as defined in SFAS 123, the impact on the reported net profit and basic earnings per share would be as follows:

in Rs. crore, except per share data 2008 2007Net profit before exceptional items As reported 4,470 3,777Adjusted pro forma 4,457 3,765

Basic EPS As reported 78.24 67.82Adjusted pro forma 78.01 67.61

16. Reconciliation of Indian and US GAAP financial statements

There are differences between the US GAAP and the Indian GAAP financial statements. The reconciliation of profits as per the Indian and the US GAAP financial statements is given below:

in Rs. crore 2008 2007Indian GAAP - stand-alone 4,470 3,783 Profits of subsidiary companies 189 83 Minority interest - (10)

Indian GAAP - consolidated 4,659 3,856 Amortization of intangibles (29) (17) Fringe Benefit Tax (2) - Stock compensation expenses (13) (24)

US GAAP net income 4,615 3,815

US GAAP net income (USD million) 1,155 850

Subsidiary companies

US GAAP requires presentation of financial statements on a consolidated basis. We have 10 subsidiaries as on March 31, 2008, namely Infosys Technologies (Australia) Pty. Limited, Infosys Technologies (China) Co. Limited, Infosys Consulting, Inc., Infosys Technologies S. de R. L. de C. V Mexico, Infosys BPO Limited and its subsidiaries, namely Infosys BPO SRO, Pan Financials Shared Services India P Ltd., P-Financial Services Holding B.V, Infosys BPO (Poland Sp. Z.o.o.) and Infosys BPO (Thailand) Limited.

Amortization of intangibles

US GAAP requires the purchase price in business combination transactions to be allocated to identifiable assets and liabilities, including intangible assets. Intangible assets are to be amortized over the estimated useful life. The amortization relates to that of an intangible asset identified in allocation of the purchase price of Infosys BPO Limited and Pan Financial Shared Services.

Stock compensation expenses

US GAAP requires upon adoption of SFAS 123(R) effective from April 1, 2007, stock compensation expenses to be recorded based on the grant date fair value of the option over its vesting term. The fair value of a stock option is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock and the expected dividends on it, and the risk-free interest rate over the expected life of the option.

Fringe benefit tax (FBT)

US GAAP requires the payment of FBT to be accounted as an expense while at the same time accounting the recovery from the employee as an adjustment to the exercise price and hence credit to equity. Whereas, under Indian GAAP the recovery is credited to the profit and loss account.

17. Related party transactions

These have been discussed in detail in the notes to the Indian GAAP financial statements in this report.

18. Events occurring after the balance sheet date There were no significant events occurring after the balance sheet date.

19. Ratio analysis

2008 2007 2006 Ratios-Financial performance

Export revenue/total revenue (%) 98.60 98.40 98.18

Domestic revenue/total revenue (%) 1.40 1.60 1.82

Software development expenses/total revenue (%) 56.72 55.35 54.13

Gross profit/total revenue (%) 43.28 44.65 45.87

Selling and marketing expenses/total revenue (%) 4.67 5.47 5.53

General and administration expenses/total revenue (%) 6.90 7.05 7.23

SG&A expenses/total revenue (%) 11.57 12.52 12.76

Aggregate employee costs/ total revenue (%) 49.89 48.02 47.29

Operating profit/total revenue (%) 31.72 32.13 33.12

Depreciation/total revenue (%) 3.49 3.57 4.53

Operating profit after depreciation and interest /total revenue (%) 28.23 28.56 28.58

Other income/total revenue (%) 4.36 2.85 1.59

Provision for investments/ total revenue (%) - 0.02 -

Profit before tax and exceptional items/ total revenue (%) 32.59 31.40 30.17

Tax/total revenue (%) 4.03 2.68 3.36

Effective tax rate-Tax/PBT (%) 12.35 8.53 11.12

Effective tax rate excluding tax reversals - Tax/PBT (%) 14.73 11.55 11.78

PAT before exceptional items /total revenue (%) 28.57 28.72 26.82

PAT after exceptional items/ total revenue (%) 28.57 28.77 26.82

PAT after exceptional items and excluding tax reversal/ total revenue (%) 27.79 27.82 26.62

Ratios - Balance sheet Debt-equity ratio - - -

Current ratio 3.28 4.91 2.73

Days Sales Outstanding (DSO) 72 64 61

Cash and equivalents/ total assets (%) (1) 57.00 50.26 64.71

Cash and equivalents/ total revenue (%) (1) 49.14 42.66 49.44

Capital expenditure/ total revenue (%) 8.76 10.97 11.61

Operating cash flows/ total revenue (%) 24.39 24.85 25.58

Depreciation/average gross block (%) 13.00 13.95 16.30

Technology investment/ total revenue (%) 2.57 3.36 3.69

Ratios - Return

PAT before exceptional items/average net worth (%) 36.26 41.83 39.89

ROCE (PBIT/average capital employed) (%) 41.38 45.73 44.89

Return on average invested capital (%) (1) 71.12 88.81 93.96

Capital output ratio 1.27 1.46 1.49

Invested capital output ratio (1) 2.76 3.29 3.74

Value added/total revenue (%) 85.97 80.71 80.79

Enterprise-value/total revenue (X) 4.76 8.34 8.61

Dividend/adjusted public offer price (%) (3) 1,785 1,549 1,011

Market price/adjusted public offer price (%) 1,94,008 2,71,987 2,00,852

Ratios - Growth

Overseas revenue (%) 19.28 45.97 31.79

Total revenue (%) 19.01 45.65 31.60

Operating profit (%) 17.47 41.35 28.56

Net profit (before exceptional items) (%) 18.35 56.01 30.23

Net profit (before exceptional items and excluding tax reversal) (%) 19.09 51.98 29.26

Net profit (after exceptional items) (%) 18.16 56.25 27.15

Basic EPS (before exceptional items) (%) 15.36 52.95 28.02

Basic EPS (before exceptional items and tax reversal) (%) 16.07 49.01 27.09

Basic EPS (after exceptional items) (%) 15.18 53.20 24.98

Ratios - Per share

Basic EPS (before exceptional items) (Rs.) 78.24 67.82 44.33

Basic EPS (before exceptional items and tax reversal) (Rs.) 76.12 65.58 44.01

Basic EPS (after exceptional items) (Rs.) 78.24 67.93 44.33

Basic cash EPS (before exceptional items) (Rs.) 87.80 76.24 51.83

Basic cash EPS (after exceptional items) (Rs.) 87.80 76.35 51.83

Price/earning,end of year (2) 18.40 29.76 33.62

Price/cash earnings,end of year (2) 16.40 26.48 28.76

PE/EPS growth (2) 1.20 0.56 1.20

Book value (Rs.) 235.84 195.41 125.15

Price/book value,end of year 6.11 10.33 11.91

Dividend per share (3) 13.25 11.50 7.50

Dividend (%) (3) 265 230 150

Dividend payout (%) (3) 19.83 19.85 19.36

Market capitalization/total revenue, end of year (x) 5.26 8.77 9.10

Note: (1) Investments in liquid mutual funds, have been considered as cash and cash equroalencs for the purpose of the above ratio analysis. (2) Before exceptional items. (3) Dividend ratios exclude Silverjubilee Dividend for fiscal 2006 and Special Dividend for fiscal 2008.

D. Opportunities and threats

We believe our competitive strengths include:

Leadership in sophisticated solutions that enable clients to optimize the efficiency of their business: We bring together our expertise in consulting, IT services and business process outsourcing to create solutions that allow our clients to increase their customer loyalty through faster innovation, restructure their cost base, and help them achieve greater success through shifting business cycles. Our expertise helps our clients improve their own efficiencies, create better value for their end customers and become more competitive. Our suite of comprehensive, end-to-end technology-based solutions enables us to extend our network of relationships, broaden our dialogue with key decision-makers on the client's site, increase the points of sale for new clients and diversify our service-mix. As a result, we are able to capture a greater share of our clients' technology budgets. Our suite of solutions encompasses consulting, design, development, product re-engineering, maintenance, systems integration and package evaluation and implementation, and business process management services from Infosys BPO. Through our consulting group and SETLabs, we research and engineer new solutions tailored for our clients and their respective industries. More recently, with the creation of Infosys Consulting, we have enhanced our ability to provide strategic and competitive analysis and complex operational consulting services. We have a well-defined methodology to update and extend our service offerings to meet the evolving needs of the global marketplace.

Proven global delivery model: We believe our highly evolved Global Delivery Model represents a key competitive advantage. Over the past decade, we have developed our onsite and offshore execution capabilities to deliver high quality and scalable services. In doing so, we have made substantial investments in our processes, infrastructure and systems, and have refined our Global Delivery Model to effectively integrate onsite and offshore technology services. Our Global Delivery Model provides clients with seamless, high quality solutions in reduced time frames enabling them to achieve operating efficiencies. To address changing industry dynamics, we continue to refine this model. Through our Modular Global Sourcing framework, we assist clients in segmenting their internal business processes and applications, including IT processes. We outsource these segments selectively on a modular basis to reduce risk and cost, and increase operational flexibility We believe that this approach and other ongoing refinements to our Global Delivery Model help us retain our industry leadership position. We were named as one of the leaders in offshore application services in Europe and North America by a leading analyst firm.

Commitment to superior qualify and process execution: We have developed a sophisticated project management methodology to ensure timely, consistent and accurate delivery of superior quality solutions to maintain a high level of client satisfaction. We constantly benchmark our services and processes against globally recognized quality standards. Certifications we have received include SEI-CMMI Level 5, CMM Level 5, PCMM Level 5, TL 9000 and ISO 9001-2000. In February 2007, Infosys BPO was certified for eSCM level 4.0, the eSourcing Capability Model for Service Providers, developed by a consortium led by Carnegie Mellon University's Information Technology Services Qualification Center.

Strong Brand and Long-Standing Client Relationships: We have long-standing relationships with large multinational corporations built on successful prior engagements with them. Our track record of delivering high quality solutions across the entire software life cycle and our strong domain expertise help us solidify these relationships and gain increased business from our existing clients. As a result, we have a history of client retention and derive a significant proportion of revenues from repeat clients.

Status as an employer of choice: We believe we have among the best talent in the Indian technology services industry and are committed to remaining among the industry's leading employers. We have a presence in 13 cities in India, allowing us to recruit technology professionals with specific geographic preferences. We have a diverse workforce which includes employees from 70 nationalities. Our training programs ensure that new hires enhance their skills in alignment with our requirements and are readily deployable upon completion of their training programs. Our lean organizational structure and strong unifying culture facilitate the sharing of knowledge and best practices among our employees.

Ability to scale: We have successfully managed our growth by investing in infrastructure and by rapidly recruiting, training and deploying new professionals. We currently have 52 global development centers, the majority of which are located in India. We also have development centers in various countries including Australia, Canada, China, Japan, Mauritius, Mexico, Poland and at multiple locations in the United States and Europe. Our financial position allows us to make the investments in infrastructure and personnel, required to continue growing our business. We can rapidly deploy resources and execute new projects through the scalable network of our global delivery centers.

Innovation and leadership: We are a pioneer in the technology services industry We are one of the first Indian companies to achieve a number of significant milestones, which has enhanced our reputation in the marketplace. For example, we are one of the first companies to develop and deploy a Global Delivery Model and attain SEI-CMMI Level 5 certification for both our offshore and onsite operations. More recently, we established a business consulting practice in the United States which leverages our Global Delivery Model. In addition, we are the first Indian company to list on a US stock exchange. We are also the first Indian company to do a Public Offering Without Listing in Japan. In December 2006, we became the first Indian company to be added to the NASDAQ-100 index. Infosys is the first Indian company to be part of any of the major global indices.

Our strategy

We seek to further strengthen our position as a leading global technology services company by successfully differentiating our service offerings and increasing the scale of our operations. To achieve these goals, we seek to:

Increase business from existing and new clients: Our goal is to build enduring relationships with both existing and new clients. With existing clients, we aim to expand the nature and scope of our engagements by increasing the size and number of projects and extending the breadth of our service offerings. For new clients, we seek to provide valueadded solutions by leveraging our in-depth industry expertise and expanding the breadth of services offered to them beyond those in the initial engagement. We manage first-time engagements by educating clients about the offshore model, taking on smaller projects to minimize client risk and demonstrating our execution capabilities. We also plan to increase our recurring business with clients by providing software re-engineering, maintenance, infrastructure management and business process management services which are long-term in nature and require frequent client contact. Our Strategic Global Sourcing Group consists of senior professionals and has been established to identify, secure and manage new, large, and long-term client engagements.

Expand Geographically: We seek to selectively expand our global presence to enhance our ability to service clients. We plan to accomplish this by establishing new sales and marketing offices, representative offices and global development centers to expand our geographical reach. We intend to increase our presence in China through Infosys China, in the Czech Republic and Eastern Europe directly and through Infosys BPO, in Australia through Infosys Australia and in Latin America, through Infosys Mexico. We intend to use our operations in these regions to eventually support clients in the local market as well as our global clients.

Invest in infrastructure and employees: We intend to continue to invest in physical and technological infrastructure to support our growing worldwide development and sales operations and to increase our productivity. To enhance our ability to hire and successfully deploy increasingly greater numbers of technology professionals, we will invest in recruitment and training, and maintain a rewarding work environment. During fiscal 2008, we screened over 8,85,000 employment applications, tested over 2,27,600 applicants, interviewed over 97,500 applicants and made approximately 46,300 offers of employment. These statistics do not include Infosys BPO or our other subsidiaries. We have also completed the construction of an employee training facility in Mysore, India to further enhance our employee training capabilities. The Mysore facility is able to house 4,800 trainees at any one time, and is able to provide the facilities required for the training of approximately 15,200 employees annually.

Enhance our solution set: We seek to continually enhance our portfolio of solutions as a means of developing and growing our business. To differentiate our services, we focus on emerging trends, new technologies, specific industries and pervasive business issues that confront our clients. In recent years, we have added new service offerings, such as consulting, business process management, systems integration and infrastructure management, which are major contributors to our growth. We also established Infosys Consulting to add additional operational and business consulting capabilities to our Global Delivery Model. Furthermore, our Modular Global Sourcing framework and other refinements to our Global Delivery Model enhance our ability to service our customers.

Develop deep industry knowledge: We continue to build specialized industry expertise in the financial services, manufacturing, telecommunications, retail, transportation and logistics industries. We combine deep industry knowledge with an understanding of our clients' needs and technologies to provide high value, quality services. Our industry expertise can be leveraged to assist other clients in the same industry, thereby improving quality and reducing the cost of services to our clients. We will continue to build on our extensive industry expertise and enter into new industries.

Enhance brand visibility: We continue to invest in the development of our premium brand identity in the marketplace. Our branding efforts include participating in media and industry analyst events, sponsorship of and participation in targeted industry conferences, trade shows, recruiting efforts, community outreach programs and investor relations. We have instituted the Wharton Infosys Business Transformation Award, offered jointly with the Wharton School at the University of Pennsylvania to recognize visionaries and Global 2000 organizations that use technology innovatively to transform their industries. We also instituted the ACM-Infosys Foundation Award jointly with the Association of Computing Machinery (ACM), for the recognition of young scientists and system developers whose contemporary innovations have an impact on the computing field. Additionally, we have instituted a Rs. I million Infosys Mathematics Award jointly with the National Institute of Advanced Studies in order to encourage research in mathematics and sciences. We believe that a strong and recognizable Infosys brand will continue to facilitate the new business lead generation process, and enhance our ability to attract talented personnel globally.

Pursue alliances and strategic acquisitions: We plan to continue developing alliances that complement our core competencies. Our alliance strategy is targeted at partnering with leading technology providers, which allows us to take advantage of emerging technologies in a mutually beneficial and cost-competitive manner. We also intend to selectively pursue acquisitions that augment our existing skill sets, industry expertise, client base or geographical presence. In January 2004, we acquired Infosys Australia primarily due to its market position in Australia, skilled employees, management strength, expertise in the telecommunications industry and potential to serve as a platform for enhancing business opportunities in Australia.


We operate in a highly competitive and rapidly changing market and compete with the following:

* Consulting firms such as Accenture, Atos Origin, Bearing Point, Capgemmi and Deloitte Consulting

* Divisions of large multinational technology firms such as HP and IBM

* IT outsourcing firms such as Computer Sciences Corporation, EDS, Keane, Logica CMG, and Perot Systems

* Offshore technology services firms such as Cognizant Technologies, Satyam Computer Services, Tata Consultancy Services and Wipro

* Software firms such as Oracle and SAP

* Business process outsourcing firms such as Genpact, HCL, and WNS; and

* In-house IT departments of large corporations.

In the future, we expect competition from firms establishing and building their offshore presence and firms in countries with lower personnel costs than those prevailing in India. However, we recognize that price alone cannot constitute sustainable competitive advantage. We believe that the principal competitive factors in our business include the ability to:

* Effectively integrate onsite and offshore execution capabilities to deliver seamless, scalable, cost-effective services

* Increase scale and breadth of service offerings to provide one-stop solutions

* Provide industry expertise to clients' business solutions

* Attract and retain high quality technology professionals; and

* Maintain financial strength to make strategic investments in human resources and physical infrastructure through business cycles.

We believe we compete favorably with respect to these factors.

E. Outlook, risks and concerns

This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors.

* Our revenues and expenses are difficult to predict and can vary significantly from period to period, which could cause our share price to decline

* We may not be able to sustain our previous profit margins or levels of profitability

* The economic environment, pricing pressure and rising wages in India and overseas could negatively impact our revenues and operating results

* Our revenues are highly dependent on clients primarily located in the United States and Europe, as well as on clients concentrated in certain industries. Economic slowdowns or factors that affect the economic health of the United States, Europe or these industries may affect our business.

* Any inability to manage our growth could disrupt our business and reduce our profitability

* We may face difficulties in providing end-to-end business solutions for our clients, which could lead to clients discontinuing their work with us which, in turn, could harm our business

* Intense competition in the market for technology services could affect our cost advantages, which could reduce our share of business from clients and decrease our revenues

* Our revenues are highly dependent upon a small number of clients, and the loss of any one of our major clients could significantly impact our business

* Legislation in certain of the countries, in which we operate, including the United States and the United Kingdom, may restrict companies in those countries from outsourcing work overseas

* Our success depends largely upon our highly skilled technology professionals and our ability to hire, attract and retain these personnel

* Our success depends in large part upon our management team and key personnel and our ability to attract and retain them

* Our failure to complete fixed-price, fixed-time frame contracts within budget and on time may negatively affect our profitability

* Our client contracts can typically be terminated without cause and with little or no notice or penalty, which could negatively impact our revenues and profitability

* Our engagements with customers are singular in nature and do not necessarily provide for subsequent engagements

* Our client contracts are often conditioned upon our performance, which, if unsatisfactory, could result in less revenue than previously anticipated

* Some of our long-term client contracts contain benchmarking provisions which, if triggered, could result in lower future revenues and profitability under the contract

* Our business will suffer if we fail to anticipate and develop new services and enhance existing services in order to keep pace with rapid changes in technology and the industries on which we focus

* Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance

* Disruptions in telecommunications, system failures, or virus attacks could harm our ability to execute our Global Delivery Model, which could result in client dissatisfaction and a reduction of our revenues

* We may be liable to our clients for damages caused by disclosure of confidential information, system failures, errors or unsatisfactory performance of services

* We are investing substantial cash assets in new facilities and physical infrastructure, and our profitability could be reduced if our business does not grow proportionately

* We may be unable to recoup our investment costs to develop our software products

* We may engage in acquisitions, strategic investments, strategic partnerships or alliances, or other ventures that may or may not be successful

* Our earnings have been and will continue to be adversely affected by the change to our accounting policies with respect to the expensing of stock options

* Our net income would decrease if the Government of India reduces or withdraws tax benefits and other incentives it provides to us or when our tax holidays expire or terminate

* In the event that the Government of India or the government of another country changes its tax policies in a manner that is adverse to us, our tax expense may materially increase, reducing our profitability

* Currency fluctuations may affect the results or our operations

* We operate in jurisdictions that impose transfer pricing and other tax-related regulations on us, and any failure to comply could materially and adversely affect our profitability

* Wage pressures in India may prevent us from sustaining our competitive advantage and may reduce our profit margins

* Terrorist attacks or a war could adversely affect our business, results of operations and financial condition

* The markets in which we operate are subject to the risk of earthquakes, floods and other natural disasters

* Regional conflicts in South Asia could adversely affect the Indian economy, disrupt our operations and cause our business to suffer

* Restrictions on immigration may affect our ability to compete for and provide services to clients in the United States, which could hamper our growth and cause our revenues to decline

* Changes in the policies of the Government of India or political instability could delay the further liberalization of the Indian economy and adversely affect economic conditions in India, which could impact our business and prospects

* Our international expansion plans subject us to risks inherent in doing business internationally

* The above risks have been dealt with in detail in our various filings with the U.S. Securities and Exchange Commission (SEC). The details are available on our website

F. Internal control systems and their adequacy

The CEO and CFO certification provided in the report discusses the adequacy of our internal control systems and procedures.

G. Material developments in human resources / industrial relations front, including number of people employed

In 2006, we were ranked as the best company to work for in India by the TNS-Mercer survey in Business Today.

Our culture and reputation as a business leader in the technology services industry enables us to recruit and retain the best available talent in India.

Human capital

Our professionals are our most important assets. We believe that the quality and level of service that our professionals deliver are among the highest in the global technology services industry We are committed to remaining among the industry's leading employers.

The key elements that define our culture include:


We have built our global talent pool by recruiting new students from premier universities, colleges and institutes in India and through need-based hiring of project leaders and middle managers. We typically recruit only those students in India who have consistently shown high levels of achievement. We have also begun selective recruitment at campuses in the United States, the United Kingdom, Australia and China. We rely on a rigorous selection process involving a series of aptitude tests and interviews to identify the best applicants. This selection process is continually assessed and refined, based on performance tracking of past recruits.

Our reputation as a premier employer enables us to select from a large pool of qualified applicants. For example, in fiscal 2008, we received over 8,85,000 applications, tested over 2,27,500 applicants, interviewed over 97,600 applicants and extended job offers to approximately 46,300 applicants. In fiscal 2008, we added approximately 13,600 new employees, net of attrition. These statistics do not include Infosys BPO, which recruited approximately 5,300 new hires, net of attrition, during fiscal 2008, or any of our other wholly owned subsidiaries.

Training and Development

Our training, continuing education and career development programs are designed to ensure that our technology professionals enhance their skill-sets in alignment with their respective roles. Most new student hires complete approximately 14 weeks of integrated on-the-job training prior to being assigned to business units. We continually provide our technology professionals with challenging assignments and exposure to new skills, technologies and global opportunities.

As of March 31, 2008, we employed 338 full-time employees as faculty members, including 143 with doctorate or masters degrees. Our faculty conducts integrated training for our new employees. We also have our employees undergo certification programs each year to develop the skills relevant for their roles.

Leadership development is a core part of our training program. We established the Infosys Leadership Institute on a 336 acre campus in Mysore, India to enhance leadership skills that are required to manage the complexities of the rapidly changing marketplace. We provide a challenging, entrepreneurial and empowering work environment that rewards dedication and a strong work ethic. In addition, we also have been working with several colleges across India through our Campus Connect program, enabling their faculty to provide industry-related training to students at the colleges.


Our technology professionals receive competitive salaries and benefits, and are eligible to participate in our stock option plans. We have also adopted a performance-linked compensation program that links compensation to individual performance, as well as our performance.

Risk management report

'Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.'

- John Allen Paulos in his book A Mathematician Plays the Stock Market

The following report sets out the enterprise-wide risk management that we practice. Readers are cautioned that the risks outlined here are not exhaustive and are for information purposes only. The report may contain forward-looking statements. Our business model is subject to uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Readers are requested to exercise their own judgment in assessing the risks associated with the Company, and refer to the discussions of risks in the Company's previous annual reports and the filings with the U.S. Securities and Exchange Commission.

Overview and approach to risk management

We face changes in the business environment from time to time that necessitate continuous evaluation and management of significant risks faced by us. The Enterprise Risk Management (ERM) program at Infosys aims toward appropriately evaluating and managing risks holistically, so as to enable the organization to meet or exceed the expectations of multiple stakeholders. The program seeks to eliminate negative surprises that may affect the achievement of our business objectives and impact our stakeholders' expectations. Further, effective risk management practices at Infosys are geared toward sustaining and enhancing our competitive advantage.

Risk management is embedded into our fundamental business model described as Predictable, Sustainable, Profitable, and De-risked' (PSPD). We seek long-term relationships that allow us to grow more predictably. We eschew excessive pursuit of short-term and tactical opportunities for sustainable business opportunities, generated through deep client relationships.

Our Risk Management Framework encompasses the relationship between the risk and the reward, factoring in stakeholders' expectations. Our risk management practices seek to maximize business returns while keeping risks within reasonable boundaries. The practices are oriented to evaluate relevant risks, and decide the appropriate action(s), for either eliminating or mitigating the risk impact, or toward recovering from the risk event. The risk mitigation strategy and action plan in most cases is based on commercial considerations; evaluating costs of the various options available to address the risk against the possible business benefits.

Risk management landscape at Infosys

The risk management landscape consists of various risk-related initiatives and activities including the following:

* Risk identification: A periodic or trigger-based assessment is undertaken to identify our significant risks and prioritize the risks for action. This assessment is based on a risk perception survey, business environment scanning, and inputs from key stakeholders.

* Risk measurement and control: The key risks are tracked and risk mitigation and control activities are defined, to align the risk exposure levels to the risk appetite. Owners are identified for mitigation and control measures.

* Risk reporting: Periodic reporting on the identified risks is an integral part of the risk management process at Infosys, Besides risk reporting, and control functions embedded in the business operations of each unit and function, the identified material risks are reported to the Risk Council periodically, Further, a quarterly report is presented to the Risk Management Committee, which additionally reviews the ERM program, the status, and trends available on the material risks highlighted.

Organization of the risk management function

Risk management at Infosys spans across the enterprise at various levels, from Infoscions through to Board oversight. These levels also form the various lines of defense in risk management at Infosys.

The roles and responsibilities regarding risk management at Infosys are summarized below:

Level Role

Board of Directors : * Oversees risk management performed by the Executive Management.

Risk Management : * Comprises four independent directors: Committee David L. Boyles, Chairperson Claude Smadja Prof. Marti G. Subrahmanyam Sridar A. Iyengar * Oversees risk management on behalf of the Board. * Makes recommendations on the risk management program.

Risk Council : * Comprises the CEO, COO and CFO * Formulates risk management guidelines and policies * Reviews enterprise risks periodically, initiates action and reviews progress

Office of Risk : * Comprises a network of risk managers from all Management businesses and support groups across the Infosys Group and is led by the Chief Risk Officer (CRO)

* Facilitates the execution of risk management in the enterprise as mandated by the Risk Council * Unit Heads Manage their functions as per our risk management philosophy * Manage risks at the unit level, in consultation with the Risk Council

Infoscions : * Implement ascribed risk actions

* Provide feedback on the efficacy of risk management and warnings for early detection of risk events

Risk Management Framework

Our Risk Management Framework encompasses risks under the following broad categories:

* Strategy: Relates to the choices we make regarding the direction in which we lead the organization to enhance our competitive position.

* Industry: Relates to the inherent characteristics of our industry, market and customers and the related challenges.

* Counter-party: Relates to the risks arising from our association with parties for conducting business, where the performance of such parties is not sufficient or not desirable to achieve our business objectives.

Key risk management activities conducted during the year

* A risk perception survey was conducted with our top management, to prioritize the key risks faced by the Company. The survey was timed to coincide with the launch of the Annual Strategy Planning exercise, so that the perceived risk landscape and the resultant implications could be factored in the strategy. These were augmented further by focused discussions with key stakeholders, including the Risk Council members.

* During the year, we further expanded and refined the process of risk profiling of the accounts. The system of risk profiling for accounts focused on relevant risks emanating from the risk categories of counter-party, resources, operations, and compliance. The pilot exercise tracked the performance of both the projects and the accounts for an extended period of time.

Our unified view of the risk universe

Information for decision-making


* Planing Effectivies * Growth Engines * Leadership* Service Differentation* Brand and reputation* Execution of Strategy


* Geo-political Change* Technical innovation * Competition Intensity* Access to capital* Industry and market dynamics* Market selection


* Vendor selection* Vendor exposures* Credit Management * Supply-chain Management* Customer Exposures* Customer Concerntration


* Talent Supply Management* Talent development * Carrer Value Management* Scalability of Infrastructure* Development efficiency


* Operations Planning* Execution Excellence * Business Activity Disruption* Complex exection Management * Contingency Planning* Data for Decision Making


* Environment Dynamics* IP Management* Data Security Management* Contarctual Compliance * Contarctual exposures* Litigation/violation response

Our unified view of the risk universe

* Resources: Relates to the inability to achieve business objectives due to inappropriate sourcing or sub-optimal utilization of key organization resources such as talent and infrastructure.

* Operations: Relates to ineffective execution of core business activities including service delivery to clients as well as internal business processes. This also includes business activity disruptions arising out of external and internal factors including threat to physical security and information security.

* Compliance: Relates to inadequate compliance with existing or new regulations, inappropriate conduct of contractual obligation and inadequate safeguard of Intellectual Property leading to litigation or loss of reputation.

The secondary risk categorizations that are more detailed are set out below. The sub-classification allows us to rapidly identify where we are likely to face the potential impact of the identified risk.

* In the context of our constant endeavor to strengthen security measures across all operational centers, an external agency was authorized to conduct a physical security audit for our Bangalore facility. We have analyzed the key findings of the audit and have started a phased-implementation of the recommendations made.

* During the year, an improved risk heat map utilizing predictive measures was designed. The leading indicators forming the core of the predictive measures help to measure the extent of exposure, and also the net effect of the mitigation strategies pursued. This approach has been adopted for both evaluating and reporting on all material risks for us. This will be implemented during the next fiscal year, and will also include any new material risks that may emerge in the year.

* Our risk management team interacted with risk teams from various global corporates during the year to exchange ideas and share best practices.

Revenue segmentation

Geographic segmentation in % 2008 2007 2006 2005 2004

North America 62.0 63.3 64.8 65.2 71.2Europe 28.1 26.4 24.5 22.3 19.2India 1.3 1.6 1.7 1.9 1.4Rest of the world 8.6 8.7 9.0 10.6 8.2

Total 100.0 100.0 100.0 100.0 100.0

Industry segmentation

Manufacturing 14.7 13.5 13.9 14.4 14.8

Banking, financialservices andinsurance 35.7 37.4 36.0 34.6 36.6

Banking andfinancial services 28.5 30.2 28.5 25.2 23.7

Insurance 7.2 7.2 7.5 9.4 12.9

Telecom 21.6 19.3 16.5 18.5 16.6

Retail 11.8 10.0 10.1 9.8 11.6

Energy and utilities 5.2 5.3 4.7 3.2 3.0

Transportation 2.5 2.4 5.1 7.6 7.1

Others 8.5 12.1 13.7 11.9 10.3

Total 100.0 100.0 100.0 100.0 100.0

Project type

Fixed price 31.0 26.7 28.1 30.0 33.8

Time and material 69.0 73.3 71.9 70.0 66.2

Total 100.0 100.0 100.0 100.0 100.0

Service offering Services Applicationdevelopment andmaintenance 45.4 48.0 51.5 56.3 59.7

Applicationdevelopment 21.7 23.1 24.9 29.4 31.7

Applicationmaintenance 23.7 24.9 26.6 26.9 28.0 Business processmanagement 5.7 4.7 4.0 2.7 1.6 Consultingservices andpackageimplementation 23.8 21.1 19.7 18.8 18.2 Infrastructuremanagement 4.9 4.4 3.6 3.0 2.1 Productengineeringservices 1.6 1.6 1.8 2.0 2.2 Systems integration 2.8 2.3 1.7 1.6 1.0 Testing services 7.5 6.9 5.9 5.8 5.3 Others 4.7 7.1 8.0 6.8 7.1

Total services 96.4 96.1 96.2 97.0 97.2

Products 3.6 3.9 3.8 3.0 2.8

Total 100.0 100.0 100.0 100.0 100.0

Statutory obligations

Software Technology Parks (STP) Scheme

We have set up Software Technology Parks (STPs), which are 100% export-oriented units, for the development of software at Bangalore, Mangalore, Pune, Chennai, Bhubaneswar, Hyderabad, Chandigarh, Mysore, and Thiruvananthapuram (all in India). Certain capital items purchased for these centers are eligible for 100% customs and excise duty exemption, subject to fulfillment of stipulated export obligations, which was five times the value of duty-free imports of capital goods, or duty-free purchase of goods subject to excise, over a period of five years on a yearly basis. Beginning April 2001, the export obligation on duty-free import of capital goods, or duty-free purchase of goods subject to excise is thrice the value of such goods over a period of five years. Beginning April 2002, the export obligation on duty-free import of capital goods, or duty-free purchase of goods subject to excise is thrice the value of such goods over a period of three years. Beginning April 2003, the export obligation is restricted to net foreign exchange earnings for that particular financial year on duty-free import of capital goods, or duty-free purchase of goods subject to excise. All STP units started after March 2003 are subject to the new guidelines on calculation of export obligation as stated above. The export obligation on the wage bill was removed a few years ago.

The non-fulfillment of export obligations may result in penalties as stipulated by the government, which may have an impact on future profitability. The table showing the export obligation, and the export obligation fulfilled by us, on a global basis, for all its STP units together, is given below:

in Rs. crore

Fiscal Export Export Excess/ Cumulative obligation obligation (shortfall) excess/ fulfilled (shortfall)

1994 3 8 5 51995 8 16 8 131996 28 48 20 331997 40 69 29 621998 74 142 68 1301999 125 306 181 3112000 107 493 386 6972001 360 1,010 650 1,3472002 462 1,360 898 2,2452003 623 1,659 1,036 3,2812004 1,611* 2,643 1,032 4,3132005 396 3,312 2,916 7,2292006 439 5,217 4,778 12,0072007 749 6,726 5,977 17,9842008 743 6,916 6,173 24,157

* The cumulative balance of export obligation was adjusted during the year

The total customs and excise duty exempted on both computer software and hardware imported and indigenously procured by us since 1993, amounts to Rs. 614 crore.

We have fulfilled our export obligations on a global basis for all our operations under the Software Technology Park Scheme. However, in case of STPs operationalized during the year, the export obligation will be met in the future. The export obligation in fiscal 2004 was higher on account of setting off cumulative export obligations for and including 2004 in the same year.

Special Economic Zones scheme

Our first Special Economic Zone ('SEZ') unit, became operational at Mahindra World City (a private multi-product Special Economic Zone), Chennai, in the financial year 2005-06, with an approved area of about 75.06 acres. We established our second SEZ unit at Chandigarh (Rajiv Gandhi Chandigarh Technology Park), with an approved area of about 30.22 acres, in the financial year 2006-07. During the financial year 2007-08, SEZs at Pune and Mangalore with an approved area of about 77.82 acres and 309 acres respectively have commenced production. The SEZ Unit came into existence under the new Special Economic Zones Act, 2005 (the SEZ Act').

As per the SEZ Act, the unit will be eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50% of such profits or gains for a further five years. Certain tax benefits are also available for a further five years, subject to the unit meeting defined conditions. Other fiscal benefits including indirect tax waivers are being extended for setting up, operating and maintaining the unit.


We benefit from certain significant tax incentives provided to the software industry under Indian tax laws. These currently include: (i) deduction of export profit from the operation of software development facilities designated as Software Technology Parks (the STP tax deduction) and (ii) deduction of export profits from units in Special Economic Zones.

The period for which STP tax deduction is available to each STP is restricted to 10 consecutive years, starting from the financial year when the unit started producing computer software or March 31, 2009, whichever is earlier. On April 29, 2008, the Finance Minister of India announced the Government of India's proposal to extend the availability of the 10-year tax holiday by a period of one more year, such that the tax holiday will be available until the earlier of fiscal year 2010 or 10 years after the commencement of production by the undertaking, although such an extension is not yet effective.

The details of the operationalization of various software development centers and the year to which the exemption under the Software Technology Park Scheme and for Special Economic Zones is valid, are presented elsewhere in this Annual Report.

The benefits of these tax incentive programs have historically resulted in an effective tax rate, well below the statutory rates, for us. There is no assurance that the Government of India will continue to provide these incentives.

The government may reduce or eliminate the tax exemptions provided to Indian exporters at any time in the future. This may result in our export profits being fully taxed, and may adversely affect the post-our tax profits in the future. On a full tax-paid basis, without any duty concessions on equipment, hardware and software, our post-tax profits for the relevant years are estimated as below:

in Rs. crore, except per share data

2008 2007 2006

Profit before tax and exceptional items 5,344 4,247 2,792

Less: Additional depreciation on duty waived for certain assets 84 76 83 Reduction in other income 58 38 21

Adjusted profit before tax 5,202 4,133 2,688

Less: Income tax on the above on full tax basis 1,838 1,451 981

Restated profit after tax 3,364 2,682 1,707

Restated basic EPS (Rs.) 58.87 48.17 31.27

Note: The figures above are based on consolidated Indian GAAP financial statements. However, it may be noted that this is only an academic exercise. We have provided for income tax in full in the respective years and there is no carried forward liability on this account.

Human resources valuation

The dichotomy in accounting between human and non-human capital is fundamental. The latter is recognized as an asset and is, therefore, recorded in the books and reported in the financial statements, whereas the former is ignored by accountants. The definition of wealth as a source of income inevitably leads to the recognition of human capital as one of the several forms of wealth such as money, securities and physical capital.

We have used the Lev &T Schwartz model to compute the value of human resources. The evaluation is based on the present value of future earnings of employees and on the following assumptions: a) employee compensation includes all direct and indirect benefits earned both in India and abroad, b) the incremental earnings based on group / age have been considered, and c) the future earnings have been discounted at the cost of capital of 13.32% (previous year - 14.97%). in Rs. crore, unless stated otherwise

2008 2007

Employees (No.)Software professionals 85,013 68,156Support 6,174 4,085

Total 91,187 72,241

Value of human resourcesSoftware professionals 92,331 53,592

Support 6,490 3,860

Total 98,821 57,452

Total income 16,692 13,893

Total employee cost 8,878 7,112

Value-added 14,820 11,879

Net profits excluding exceptional items 4,659 3,861

RatiosValue of human resources per employee 1.08 0.80

Total income/human resources value (ratio) 0.17 0.24

Employee cost/human resources value (%) 9.0 12.4

Value-added/human resources value (ratio) 0.15 0.21

Return on human resources value (%) 4.7 6.7

Value-added in Rs. crore

2008 % 2007 %Value-added Income 16,692 13,893 Less: Operating expenses excluding personnel costs Software development and business process management expenses 1,306 1,187 Selling and marketing expenses 302 371 General and administration expenses 968 834 2,576 2,392 Value-added from operations 14,116 11,501 Non-operating income 704 378 Total value-added 14,820 11,879

Distribution of value-addedHuman resources Salaries and bonus 8,878 59.9 7,112 59.9 Providers of capitalDividend 1,902 12.8 649 5.5 Minority interest - - 11 0.1 Interest on debt - - - - 1,902 12.8 660 5.6 TaxesCorporate income taxes 685 4.6 386 3.2 Dividend tax 323 2.2 102 0.9 1,008 6.8 488 4.1 Income retained in business

Depreciation 598 4.0 514 4.3 Retained in business 2,434 16.5 3,105 26.1

3,032 20.5 3,619 30.4 Total 14,820 100.0 11,879 100.0

Note: 1) The figures above are based on the consolidated Indian GAAP financial statements.

2) Dividends for fiscal 2008 include special dividend of Rs. 1,144 crore.

3) Income taxes for fiscal2008 and 2007 include tax reversals of Rs.121 crore and Rs. 125 crore respectively.

Brand valuation

The strength of the invisible

From time to time, we have used various models for evaluating assets of the balance sheet to bring certain advances in financial reporting to the notice of our shareholders. The aim of such modeling is to lead the debate on the balance sheet of the next millennium. These models are still the subject of debate among researchers and using such models and data in projecting the future is risky. We are not responsible for any direct, indirect or consequential losses suffered by any person using these models or data.

A balance sheet discloses the financial position of a company. The financial position of an enterprise is influenced by the economic resources it controls, its financial structure, liquidity and solvency, and its capacity to adapt to changes in the environment. However, it is becoming increasingly clear that intangible assets have a significant role in defining the growth of a high-tech company.

Valuing the brand

The wave of brand acquisitions in the late 1980s exposed the hidden value in highly branded companies, and brought brand valuation to the fore. The values associated with a product or service are communicated to the consumer through the brand. Consumers no longer want just a product or service, they want a relationship based on trust and familiarity

A brand is much more than a trademark or a logo. It is a trustmark' - a promise of quality and authenticity that clients can rely on. Brand equity is the value addition provided to a product or a company by its brand name. It is the financial premium that a buyer is willing to pay for the brand over a generic or less worthy brand. Brand equity is not created overnight. It is the result of relentless pursuit of quality in manufacturing, selling, service, advertising and marketing. It is integral to the quality of client experiences in dealing with the company and its services over a period.

The second annual BRANDZ- Top 100 Most Powerful Brands ranking published in co-operation with the Financial Times was announced in April 2008 by Millward Brown. According to the report, Google topped the ranking with a brand value of $86 billion. The market capitalization of Google at that time was $131 billion. Thus, 66% of market capitalization represented its brand value. (source: NASDAQ website)


The task of measuring brand value is a complex one. Several models are available for accomplishing this. The most widely used is the brand-earnings-multiple model. There are several variants of this model.

We have adapted the generic brand-earnings-multiple model (given in the article Valuation of Trademarks and Brand Names' by Michael Birkin in the book Brand Valuation, edited by John Murphy and published by Business Books Limited, London) to value our corporate brand, 'Infosys'. The methodology followed for valuing the brand is given below:

* Determine brand profits by eliminating the non-brand profits from the total profits

* Restate the historical profits at present-day values

* Provide for the remuneration of capital to be used for purposes other than promotion of the brand

* Adjust for taxes

* Determine the brand-strength or brand-earnings multiple

Brand-strength multiple is a function of a multitude of factors such as leadership, stability, market, internationality trend, support and protection. We have internally evaluated these factors on a scale of 1 to 100, based on the information available within.

Brand valuation in Rs. crore

2008 2007 2006Profit before interest and tax 4,640 3,877 2,654 Less: Non-brand income 634 335 125

Adjusted profit before tax 4,006 3,542 2,529

Inflation factor 1.000 1.075 1.156

Present value of brand profits 4,006 3,808 2,924

Weightage factor 3 2 1

Weighted average profits 3,760

Remuneration of capital 626

Brand-related profits 3,134Tax 1,065

Brand earnings 2,069 Brand multiple 15.4

Brand value 31.863


* The figures above are based on consolidated Indian GAAP financial statements

* Brand revenue is total revenue excluding other income after adjusting for cost of earning such income, since this is an exercise to determine our brand value as a company and not for any of our products or services

* Inflation is assumed at 7% per annum, 5% of the average capital employed is used for purposes other than promotion of the brand, and tax rate is at 33.99%

* The earnings multiple is based on our ranking against the industry average based on certain parameters (exercise undertaken internally and based on available information) in Rs. crore

2008 2007 2006

Brand value 31.863 31,617 22,915

Market capitalization 82,362 1,15,307 82,154

Brand value as a percentage of market capitalization 38.7% 27.4% 27.9%

Brand value/revenue (x) 1.91 2.28 2.41

Economic Value-Added (EVA0)

Economic value-added measures the profitability of a company after taking into account the cost of capital. It is the post-tax return on capital employed (adjusted for the tax shield on debt) less the cost of capital employed. Companies which earn higher returns than cost of capital create value, and companies which earn lower returns than cost of capital are deemed destroyers of shareholder value. in Rs. crore, except as otherwise stated

2008 2007 2006 2005 2004Cost of capitalReturn on risk freeinvestment (%) 8.00 8.00 7.50 6.80 5.20

Market premium (%) 7.00 7.00 7.00 7.00 7.00

Beta variant 0.76 0.99 0.78 0.98 1.27

Cost of equity (%) 13.32 14.97 12.96 13.63 14.09

Average debt/totalcapital (%) - - - - -

Cost of debt - net of tax (%) NA NA NA NA NA

Weighted AverageCost of Capital(WACC) (%) 13.32 14.97 12.96 13.63 14.09

Average capitalemployed 12,527 9,147 6,177 4,331 3,125

EconomicValue-Added (EVA)Operating profits 4,640 3,877 2,654 2,048 1,357

Less: Tax 685 386 313 326 228

Cost of capital 1,669 1,369 801 590 440

EconomicValue-Added 2,286 2,122 1,540 1,132 689

Enterprise valueMarket value ofequity 82,362 1,15,307 82,154 61,073 32,909

Add: Debt - - - - -

Less: Cash and cash equivalents 8,307 6,033 4,709 2,998 2,873

Enterprise value 74,055 1,09,274 77,445 58,075 30,036

Return ratiosPAT/ average capitalemployed (%) 37.2 42.2 40.1 42.6 39.8

EVA(R)/ averagecapital employed (%) 18.2 23.2 24.9 26.1 22.1

Enterprise value/average capitalemployed (x) 5.9 11.9 12.5 13.4 9.6

Growth (%)Operating profits 19.7 46.1 29.6 50.9 25.8 Average capitalemployed 37.0 48.1 42.6 38.6 25.3 EVA@ 7.7 37.8 36.0 64.3 51.8 Market value ofequity (28.6) 40.4 34.5 85.6 22.6 Enterprise value (32.2) 41.1 33.4 93.4 19.4

Note: Cost of equity = return on risk-free investment + expected risk premium on equity investment adjusted for our beta variant in India Figures above are based on consolidated Indian GAAP financial statements

Cash and cash equivalents includes investments in liquid mutual funds

Balance sheet including intangible assets

As of March 31, in Rs. crore


Shareholders' fundsShare capital 286 286Reserves and surplus Capital reserves - Intangible assets 1,30,684 89,069 Other reserves 13,509 10,969 1,44,193 1,00,038

Minority interest - 4

1,44,479 1,00,328APPLICATIONS OF FUNDSFixed assets At cost 5,439 4,642 Less: Accumulated depreciation 1,986 1,836 Net block 3,453 2,806 Add: Capital work-in-progress 1,324 965 4,777 3,771Intangible assetsBrand value 31,863 31,617 Human resources 98,821 57,452 1,30,684 89,069

Investments 72 25

Deferred tax assets 119 92

Current assets,loans and advances

Sundry debtors 3,297 2,436 Cash and bank balances 6,950 5,834 Loans and advances 2,771 1,251 13,018 9,521 Less: Current liabilities and provisions Current liabilities 1,912 1,469 Provisions 2,279 681 Net current assets 8,827 7,371

1,44,479 1,00,328

Note: The figures above are based on consolidated Indian GAAP financial statements This balance sheet is provided for the purpose of information only. We accept no responsibility for any direct, indirect or consequential losses or damages suffered by any person relying on the same.

Intangible assets score sheet

We caution investors that this data is provided only as additional information to them. We are not responsible for any direct, indirect or consequential losses suffered by any person using this data.

From the 1840s to the early 1990s, a corporate's value was mainly driven by its tangible assets-values presented in the corporate balance sheet. The managements of companies valued these resources and linked all their performance goats and matrices to these assets - Return on Investment, capital turnover ratio, etc. The market capitalization of companies also followed the value of tangible assets shown in the balance sheet with the difference seldom being above 25%. In the latter half of the 1990s, the relationship between market value and tangible asset value changed dramatically. By early 2000, the book value of the assets represented less than 15% of the total market value. In short, intangible assets are the key drivers of market value in this new economy.

A knowledge-intensive company leverages know-how, innovation and reputation to achieve success in the marketplace. Hence, these attributes should be measured and improved upon year after year to ensure continual success. Managing a knowledge organization necessitates a focus on the critical issues of organizational adaption, survival, and competence in the face of ever-increasing, discontinuous environmental change. The profitability of a knowledge firm depends on its ability to leverage the learnability of its professionals, and to enhance the reusability of their knowledge and expertise. The intangible assets of a company include its brand, its ability to attract, develop and nurture a cadre of competent professionals, and its ability to attract and retain marque clients.

Intangible assets

The intangible assets of a company can be classified into four major categories: human resources, Intellectual Property assets, internal assets and external assets.

Human resources

Human resources represent the collective expertise, innovation, leadership, entrepreneurship and managerial skills of the employees of an organization.

Intellectual Property assets

Intellectual Property assets include know-how, copyrights, patents, products and tools that are owned by a corporation. These assets are valued based on their commercial potential. A corporation can derive its revenues from licensing these assets to outside users.

Internal assets

Internal assets are systems, technologies, methodologies, processes and tools that are specific to an organization. These assets give the organization a unique advantage over its competitors in the marketplace. These assets are not licensed to outsiders. Examples of internal assets include methodologies for assessing risk, methodologies for managing projects, risk policies, and communication systems.

External assets

External assets are market-related intangibles that enhance the fitness of an organization for succeeding in the marketplace. Examples are customer loyalty (reflected by the repeat business of the company) and brand value.

The score sheet

We published models for valuing two of our most important intangible assets - human resources and the 'Infosys' brand. This score sheet is broadly adopted from the intangible asset score sheet provided in the book titled The New Organizational Wealth, written by Dr. Karl-Erik Sveiby and published by Berrett-Koehler Publishers Inc., San Francisco. We believe such representation of intangible assets provides a tool to our investors for evaluating our market-worthiness.


The growth in revenue is 35% this year, compared to 44% in the previous year (in US $). Our most valuable intangible asset is our client base. Marque clients or image-enhancing clients contributed 46% of revenues during the year. They gave stability to our revenues and also reduced our marketing costs.

The high percentage (97%) of revenues from repeat orders during the current year is an indication of the satisfaction and loyalty of our clients. The largest client contributed 9.1 % to our revenue, compared to 7.0% during the previous year. The top 5 and 10 clients contributed around 20.9% and 31.4% to our revenue respectively, compared to 19.4% and 31.4% respectively, during the previous year. Our strategy is to increase our client base and, thereby, reduce the risk of depending on a few large clients. During the year, we added 170 new clients compared to 160 in the previous year. We derived revenue from customers located in 58 countries against 54 countries in the previous year. Sales per client grew by around 26% from US $6.18 million in the previous year to US $7.76 million this year. Days Sales Outstanding (DSO) was 72 days this year compared to 64 in the previous year.


During the current year, we invested around 3.00% of the value-added (2.67% of revenues) on technology infrastructure, and around 1.36% of the value-added (1.20% of revenues) on R&TD activities.

A young, fast-growing organization requires efficiency in the area of support services. The average age of support employees is 29.4 years, as against the previous year's average age of 30.9 years. The sales per support staff, as well as the proportion of support staff to the total organizational staff, have improved over the previous year.


We are in a people-oriented business. We added 33,177 employees this year on gross basis (net - 18,946) from 30,946 (net - 19,526) in the previous year. We added 8,523 laterals this year against 8,023 in the previous year. The education index of employees has gone up substantially to 2,51,970 from 2,03,270. This reflects the quality of our employees. Our employee strength comprises people from 70 nationalities. The average age of employees as of March 31, 2008 was 26, the same as in the previous year. Attrition was 13.4% for this year compared to 13.7% in the previous year (excluding subsidiaries). Attrition excluding involuntary separation was 12.1% for this year compared to 12.2% in the previous year.


* Marque or image-enhancing clients are those who enhance the company's market-worthiness-typically, Global 1000 clients. They are often reference clients for us.

* Sales per client is calculated by dividing total revenue by the total number of clients

* Repeat business revenue is the revenue during the current year from those clients who contributed to our revenue during the previous year too

* Value-added statement is the revenue less payment to all outside resources. The statement is provided elsewhere in this report.

* Technology investment includes all investments in hardware and software, while total investment in the organization is the investment in our fixed assets

* The average proportion of support staff is the average number of support staff to average total staff strength

* Sales per support staff is our revenue divided by the average number of support staff (support staff excludes technical support staff)

* The education index is shown as at the year end, with primary education calculated as 1. secondary education as 2. and tertiary education as 3. Value ReportingTV

At Infosys, we have always believed that information asymmetry between the Management and shareholders should be minimized. Accordingly, we have always been at the forefront in practicing progressive and transparent disclosure. We were the first in India to adopt US Generally Accepted Accounting Principles (GAAP). Thereafter, we rapidly progressed to additional disclosures that give deeper insights to the way we run our business and into our value creation. We continue to provide information that is not mandated by law because we believe it will enable investors to make more informed choices about our performance.

The Value Reporting Revolution: Moving Beyond the Earnings Game, authored by Robert Eccles, Robert Herz, Mary Keegan and David Phillips, associated to accounting firm PricewaterhouseCoopers, (published by John Wiley FCz Sons, Inc., USA, 2001), acknowledged the need to go beyond GAAP in providing information to shareholders. In their book, Building Public Trust: The Future of Corporate Reporting (published by John Wiley &T Sons, Inc., USA, 2002 PricewaterhouseCoopers), our business model and reporting were referred to in detail.

We believe the following Value Reportine paradigm applies to us.

We identified the need to provide a range of non-financial parameters early in our existence - before our Indian public offering in 1993.

To reduce information asymmetry, we make the following disclosures in addition to the mandated Indian and US GAAP financial statements and supplementary data as required by the relevant statutes:

* Brand valuation

* Balance sheet including intangible assets

* Economic Value-Added (EVA') statement

* Intangible asset scorecard

* Risk management report

* Human resource accounting and value-added statement

These reports are integral to the Annual Report.

By adopting similar internal measures to evaluate business performance, our employees are adjudged based on metrics that are additional to the financials. This balances financial and non-financial performance across all levels of the organization. Accordingly, we seek to align the measures by which stakeholders measure our performance with what results in employee rewards.

In fiscal 2005, we adopted and furnished eXtensible Business Reporting Language (XBRL) data to the United States Securities and Exchange Commission (SEC) for the first time. We are the fourth company worldwide to adopt XBRL. We continue to participate in SEC's voluntary program for reporting financial information on EDGAR using XBRL.

In the coming years, we will continue in our commitment to furnish additional qualitative information to help our shareholders better understand the management of our business.

Infosys Foundation

'For benefits of globalization and technology to reach the poor, the private sector, philanthropic institutions and committed individuals should co-operate and establish partnerships with the government institutions. This would lift millions of our people out of poverty, provide them with opportunities and make them participate in the process and progress of globalization.'

N. R. Narayana Murthy Chainnatt and Chief Mentor Intesys

The Infosys Foundation continued its focus in the areas of education, healthcare, rural upliftment, and arts and culture this year. Highlights some of the projects undertaken by the Foundation this year are:


* Sponsored Vijanana Sammelana' at Shimoga, Karnataka, to impart knowledge of science to students and teachers

* Donated computers and laptops to Gulbarga University, Atham University, Mangalore University and to the All India Vayu Sainik Camp in Bangalore

* Launched OASIS, a training program for students in government schools

* Worked with Sanmati Matimand Vikas Kendra in Maharashtra and the Association for the Mentally Challenged in Bangalore, toward the empowerment of the mentally challenged

* Collaborated with Ichalkaranji Seva Bharathi, Mumbai Vidya Prasarak Mandal, Lucknow Yogakshema, Hyderabad Karnataka Sikshana Samithi, Kota Vidya Samste and Arunachal Pradesh Vidya Kendra to provide education for underprivileged children

* Worked with the Karavir Nagar Vachan Mandir in Kolhapur, Maharashtra to convert the library into an e-library and connected it to other libraries around the world

* Supplied Chandamama books every month to schools in rural areas to inculcate reading habit among rural students

* Partnered with Vela School in Villupuram in Tamil Nadu, Cochlea Trust in Pune and Helpers of the Handicapped in Kolhapur to promote education among children with disabilities

* Started a Book Bank to support academics and reduce the burden of expenditure in a few towns in Karnataka

* Partnered with Prerna, an NGO, in Bangalore and Delhi for education of street children


* Completed the construction of an advanced pediatric block at Wenlock Hospital in Mangalore and a Community Eye Centre within the premises of the Shankar Nethralaya in Bangalore

* Donated medical equipment and medicines to the Trivandrum Regional Cancer Centre, Salem Charitable Hospital and Jammu Hospital. The Foundation has spread its donations to various other hospitals in Karnataka and Maharashtra where poor patients are treated for free.

* Donated ambulances to Sri Jayachamarajendra Indian Medical Institute and to a government hospital in Gandhi Nagar

* Worked with SEARCH, an NGO, to reduce neonatal and infant mortality by developing a low-cost, home-based model of primary neonatal care

Arts and culture

* Sponsored more than 5,000 students, through NGOs like Prerna and Vidya Poshak, for the study and documentation of Karana Viniyoga, to preserve and encourage the art. Karana is a dance form defined and described in great detail by sage Bharatha in his work Natyashastra.

* Supported the Bhandarkar Oriental Research Institute in researching ancient Indian manuscripts

* Sponsored Uppina Kudru Kamath Memorial Yakshagana Gombeyatta puppet shows in Karnataka to preserve the art of puppetry

Rural upliftment

* Conducted relief work for the flood victims in Kerala and Orissa

* Sponsored the construction of a suspension foot bridge in Mundaje in Mangalore, Karnataka

* Continued to work on rehabilitating devadasis and their children through education and training in Raichur, Karnataka

* Destitute widows and physically challenged women in rural Karnataka are being empowered in collaboration with an NGO called RAPID

* Provided free food to orphan children at Chamarajanagar, Mysore, Bangalore (all in Karnataka), Salem in Tamil Nadu and Orissa

Grants by Infosys to the Foundation The grants made during the last three years are given below: in Rs. crore Grants

2008 20.002007 19.002006 13.25

Report on environment, health and safety

Infosys believes that our infrastructure and facilities strategy should consider the environmental issues and be seen as a company that promotes ecological balance while maintaining operational efficiencies.

OZONE -The Health, Safety and Environmental (HSE)

Management System at Infosys

OZONE was initiated in 2003 to promote and manage environmental issues and employee health and safety. The Health, Safety and Environment (HSE) policy of Infosys covering employees, contractual employees and visitors states: 'Infosys as a corporate citizen is committed to demonstrating a high standard of environmental protection, sharing of best practices and provision of a safe and healthy workplace.'

To achieve this, we shall work toward:

* Conservation of resources* Prevention of pollution* Adherence to all applicable legislations* Eliminating accidents and occupational illnesses and injuries.

We will work with various stakeholders towards continual improvement of our environmental, health and safety management system. We shall meet mandated health and safety requirements as a minimum and strive to go beyond regulatory limitations to become a leader in environment, health and safety management.'

We are also ISO 14000 (ISO 14001: 2004) and OHSAS 18001: 1999 compliant at eight of our development centers in India.

The OZONE initiative achieved the following this year:

* Awareness: Equipped 11,266 employees and 4,175 trainees with an understanding on the environment, health and safety policy of Infosys and led to their taking responsibility through pledging their support for the initiative.

* Wafer: The per capita consumption of water at 2.9 KL per month reduced by 5% from last year. 100% of water is recycled and reused. We plan to introduce initiatives to reduce consumption by 25% in the near future.

* Paper: 8% reduction in consumption of paper. Our goal in the medium term is to reduce it by 25%.

* Energy: Per capita consumption maintained at an optimum 273 units per month. Solar water heaters are used in our hostel facilities at Bangalore, Mysore, Pune, Chandigarh, Bhubaneswar and Hyderabad. Efforts are on to identify other potential areas to use renewable energy. Our goal is to reduce energy consumption by 25% in the near future.

* Carbon emissions: We recommend that employees use public or Infosys buses to commute to work. We operate 463 buses and 24,633 employees comprising 34% of our total employee strength avail this service. 50% (35,193) employees use public transport and 16% use personal vehicles. We plan to provide incentives for car pooling. We see renewable energy as one of the effective tools to achieve our commitment of carbon neutrality and we have initiated evaluating options suitable at various campuses. Our target is to reduce 10% of our energy-related greenhouse gas emissions in the near future.

* Waste management: We continue with our best practices on waste segregation and disposal of solid waste. We educate our vendors on ethical processes. The usage of plastic and thermocol has been reduced by 90% in the campuses. Food waste is sent to the piggeries.

* E-waste: Though there is no legislation in India on e-waste, we adhere to the Hazardous Waste (Management and Handling) Rules. Recently, a guideline on e-waste has been released by the Central Pollution Control Board (CPCB) which has been approved by the Ministry of Environment and Forests. E-waste at Infosys is sent to recyclers who have valid approvals/consents from the local Pollution Control Board and CPCB. The Management's plans to ensure safe disposal of e-waste are in place and we propose to dispose 20% of our e-waste next year.

Biodiversity is the foundation of life on earth and one of the pillars of sustainable development. The conservation and sustainable use of biodiversity is an essential element of our site selection strategy. Most of our campuses have large green tracts of land. We have over 40,000 trees above the height of 1.5 meters and are proposing to grow one tree for every new hire. Besides ornamental trees, we are now committed to growing aromatic, aquatic, fruit bearing and medicinal plants. We use organic fertilizer for our landscaping requirements.

We have taken the climate change challenge very seriously and have set up a dedicated Green Team that is working toward sustainable development. All our future buildings will comply with a minimum of Gold rating as per the IGBC LEEDS rating system which defines the standards and measures for sustainable buildings. Our approach is to use an integrated design process to ensure that the architectural elements and the engineering systems work effectively together. We want to reduce our dependence on mechanical systems and are therefore applying passive and active solar design principles in our buildings.

Energy saved is energy generated. We have embarked on an aggressive plan to improve the performance of existing buildings across our campuses.

In addition, we are evaluating opportunities to procure electricity via renewable technologies such as wind, mini-hydro and solar.

Health Assessment and Lifestyle Enrichment (HALE) Plan

The Health Assessment and Lifestyle Enrichment Plan (HALE) initiative focuses on increasing the emotional value-add of our employees, by optimizing their health, quality of life and work environment. The goal is to ensure healthy and happy employees who will be more productive and in the long term, add to our competitive edge in business.

HALE strove to achieve this goal last year through a set of offerings that focused on health, safety, stress and leisure. HALE activities were deployed through multiple channels:

* An interactive portal and quizzes that provided a wealth of knowledge and stimulated Infoscions on thinking 'healthy and happy'.

* A comprehensive health and well-being plan for employees which consisted of offerings such as preventive healthcare options for employees and families, health checks, talks, consultations, fitness related interventions, and health awareness campaigns. Last year, 55 health-related events were conducted in which 13,200 employees participated.

* The HALE Health Week, comprising yearly master health check-ups and focused health and stress campaigns, was conducted in our campuses during March 2008. Over 6,000 employees underwent medical check-ups and specialist consultations. Approximately 10,000 employees used the online interventions related to the Health Week which included an online health hunt, a health quiz and specialist doctors' discussions on Infy TV

* Workshops and talks by experts on first aid, trauma handling and CPR helped our employees in case of emergencies. Over 12,000 employees were benefitted by these workshops.

* A hotline help and the HALE Tool aim to provide timely, expert help to employees and their families on issues related to relationships, stress, depression and personal issues. A stress audit which had over 8,000 responses over the last year, a pilot rollout of the EAP (Employee Assistance programme), and topical workshops on relationships, families and work-life balance were also organized.

* An annual safety week is also conducted across DCs.

Our environment and health events also encourage contractual employees to participate, and we have initiated subsidized annual health check-ups for them.