Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Three years ago, Infosys, the bellwether for India's outsourcing industry, shocked investors with such a disastrous forecast for sales growth that its shares tanked 21 percent in one day. To stop the hemorrhaging, the Bangalore-based company overhauled its management, which culminated in the remaining founders leaving the firm and Vishal Sikka, an executive at Germany's SAP, being appointed CEO in August 2014.

Scars began to heal, but the one advantage Infosys seemed to have permanently surrendered to its Nasdaq-listed rival, Cognizant, was investor confidence. It's this lost credibility that Sikka is seeking to reclaim, and large shareholders are betting on him to succeed.

Narrowing the Gap
Source: Bloomberg

One test of how Sikka is faring will come on Friday when Infosys reports earnings for the March quarter along with its sales outlook for the financial year that started April 1. For some time, options traders have been giving the group a cautious vote of confidence. Derivatives markets aren't as nervous as they were three years ago:

Fret Not
Anxiety over Infosys's results has ebbed, as shown by stock-price volatility around earnings date predicted by options*
Source: Bloomberg
*Average one-day option predicted price volatility for 30 days prior to earnings is plotted for each quarter.

To be sure, the outlook for traditional outsourcing services is far from great.

The once-profitable business of helping global companies customize and deploy enterprise software products is under attack from newer, nimbler digital technologies such as cloud computing, analytics and mobile. Infosys has yet to convince shareholders that it can adapt. Furthermore, an election year in the U.S. means jawboning around visa entitlements, which matter to companies like Infosys that send Indian engineers to work on client sites overseas.

Regardless, more large investors are piling into Infosys stock, and its 8.6 percent total return over the past 12 months compares with a 12 percent loss for the benchmark Sensex.

Back on Board
The smart money is returning to Infosys
Source: Bloomberg

Growth worries are undoubtedly receding. According to Jefferies, Infosys will probably forecast industry-leading revenue expansion of 11 to 13 percent for the current financial year.

Three years ago, its sales forecast was the source of disappointment; lowball guidance on profitability is the bigger risk on Friday. While it's unclear if the company will be able to win new business at higher margins, the options market is taking the threat in its stride. Traders are currently betting that Infosys ADRs will rise or fall about 6.4 percent in one day after its earnings announcement, less than the actual swing observed after each of the past four quarterly results.

As long as Sikka doesn't deliver any rude surprises, India's outsourcing bellwether should have a pleasing ring.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at

To contact the editor responsible for this story:
Katrina Nicholas at