Shares in Infosys Technologies hit an all-time high on Thursday after India's No.2 software

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services exporter had issued a strong sales forecast that indicated a healthy demand outlook for outsourcing services.

But some analysts cautioned the share gains in Infosys and rivals Tata Consultancy Services and Wipro were unlikely to be sustained as a stronger rupee and rising wages threaten margins.

On Tuesday, Infosys had put out a better-than-expected sales forecast for the year to next March suggesting a recovery for India's $60 billion software services sector, prompting investors to pile into information technology stocks.

Trading in Infosys shares was more than double normal levels, after markets were closed on Wednesday for a public holiday.

Infosys, whose customers include Goldman Sachs, BT Group and BP, forecast its fiscal 2011 revenue would increase 16-18 percent in U.S. dollars, better than most analysts had predicted.

Infosys shares, valued at $36 billion, rose as much as 1.5 percent to a record 2,823.80 rupees in a slightly firmer Mumbai market. The IT sector index also rose 1.5 percent and is close to its life high set in February 2007.

"We believe most of the positives are already priced in (and) there is a small upside from here," said A. V. Srikanth, executive director of private wealth management at Anand Rathi. "An appreciating rupee remains a big risk."

India's rupee rose 3.6 percent against the dollar in the March quarter after a 4.7 percent gain in 2009. A stronger rupee eats into profit margins at Indian software services firms that earn more than half their revenue from the United States.

Shares in sector leader Tata Consultancy, which is expected to report on Monday a 38 percent rise in January-March net profit, rose as much as 1.8 percent.

Of three dozen analysts covering Infosys, as tracked by Thomson Reuters StarMine, 16 rate the Bangalore-based firm a 'strong buy' and 10 a 'buy'. The other 10 have it as a 'hold'. The 12-month mean target price is 2,877.94 rupees - less than 2 percent above Thursday's high.

GROWTH MOMENTUM

Deutsche Bank noted Infosys' dollar revenue outlook topped the 12-15 percent expected in the market, and that the growth momentum should continue in the coming quarters.

TCS, Infosys and third-ranked Wipro have revived hiring and are competing for staff and orders with IBM, Accenture and Hewlett-Packard as outsourcing demand picks up.

Morgan Stanley said Infosys shares would probably only tick higher once the company upgrades its earnings per share estimates, which the broker said was unlikely before the September quarter.

Infosys on Tuesday said it expected earnings per share in a range of 106.82 rupees to 111.28 rupees for the year to March 2011, up or down around 2 percent from the year just ended.