Tata Consultancy Services (TCS), India's largest software exporter, reported a collapse in earnings growth in the first quarter of its financial year after a massive dollar hedging position went spectacularly wrong.

India's largest private sector employer said that first-quarter net income was up just 2 per cent, at $296 million (£148 million), compared with the same period a year earlier. By contrast, in the first quarter of 2007, net income had surged 55 per cent to $291 million.

Revenues were up 21 per cent, year-on-year, at $1.5 billion.

Operating margins remained stable, the company said, partly assuaging fears that the group would be hit by the meltdown on Wall Street, the home of TCS's most important customers.

The reason for the plummeting net income growth was a sudden fall in the value of the rupee — a factor that should help the Indian IT sector over time. TCS had taken out a $2.2 billion hedge, effectively betting that the rupee would continue to appreciate against the dollar, following the same path as last year. Instead, the value of the Indian currency has fallen sharply in recent weeks, weighed down by a dramatic worsening of India's fiscal deficit and by warnings over the stability of its sovereign debt.

After being forced to close its positions, TCS lost about $18 million in the quarter.

Shares in the group had fallen 3 per cent ahead of the earnings announcement, partly on fears that a slowdown on Wall Street would hit earnings.

"We have been able to respond to the challenging macro environment and drive growth in the business under tough operating conditions and manage costs," S. Ramadorai, chief executive and managing director of TCS, said.

On Friday, shares in Infosys, India's second-largest IT exporter, slumped 7 per cent after the group disappointed investors by not upgrading its dollar-denominated earnings outlook. The fall in the shares came despite the weaker rupee and a tax gain helping to raise first-quarter net profits by 21 per cent.

TCS hired 4,895 employees in the first quarter, on a net basis, taking its total staff to 116,308 at the end of June.

Times Recommends

• Equitable Life halts £7bn sale on market turmoil
• Potential buyers emerge to save Woolworths staff
• Terrorist attacks close Bombay Stock Exchange