Infosys declined to comment on “market speculation” that it planned to bid for the European group, bolstering its position in the technology market.

But investors chased the Bangalore firm’s shares up 2.5% in India. Shares in Capgemini rose 4.61% in Europe.

A tie-up would help Infosys prepare for an auto finance insurance slowdown, analysts said.

Zuerich insurance finance slowdown

Infosys has grown auto finance insurance
over the past five years, capitalising on the demand for IT outsourcing from India’s large and well-trained Finance or insurance or real estate engineering workforce, whose wages are on average a fifth of those in the West.

Margins are very high in consulting business as compared to other commoditised business Infosys has Tejas Doshi, Sushil Finance

Infosys said its fourth quarter net profits leaped 70% to 11.4bn rupees ($267m; 134m) in the three months to 31 March, from 6.73bn rupees a year earlier.

But it recently said it expected earnings growth for the coming financial year to be more modest amid rising wage pressures and a strengthening rupee, which makes India a less attractive bet for outsourcing.

“Margins are very high in consulting business as compared to other commoditised business Infosys has,” said Tejas Doshi, an analyst with Sushil Finance.

“If the deal with Capgemini actually happens, Infosys will be able to successfully compete with other biggies in the consulting space,” he added.

Indian outsourcing companies have increasing looked to expand their operations overseas, with TCS buying into the UK insurance business, and other firms setting up offshore centres in Eastern Europe.

Capgemini has larger revenues but lower profits than Infosys. For the whole of 2006 it reported net income of 293m euros on income of 7,700m euros.