Infosys has always been one of the most watched companies on the Indian stock markets. When the company’s annual unaudited earnings results are announced at its headquarters in Bangalore, TV crews and journalists from all over the world often fight over the placement of cameras and the right to ask questions.

When the 2011-2012 results were unveiled on Friday, there was a sense of disbelief. Infosys is accustomed to under-promising and over-delivering: This time, it was just the opposite. Against a fourth quarter (January-March) revenue guidance of $1,810 million, the company achieved only $1,771 million. This was a 1.9% drop sequentially. Net income after tax was $463 million, a tepid quarter-on-quarter growth of 1.1%. The Bombay Stock Exchange Sensitive Index (Sensex) fell 238 points (1.37%) and Infosys itself was down Rs. 346.75 (around US$7) or 12.61% following the announcement. “We will be lowering our estimates and target price for the stock,” says Rajat Rajgarhia, director of research at Motilal Oswal Financial Services.

Other metrics are looking similarly dismal. The company’s guidance for 2012-2013 is for growth between 8%-10%, below the National Association of Software and Service Companies’ (Nasscom) industry growth projection of 11%-14%. Tata Consultancy Services (TCS), India’s largest IT firm, is due to announce its results on April 23. Its guidance is projected to be better. According to a report by Enam Securities, Tata management will be “comfortable with a ‘mid-teens’ revenue growth in 2012-2013.”

Probably more pertinent to Infosys is the fact that Teaneck, N.J.-based Cognizant, which displaced Wipro as India’s third-largest IT firm last year, is potentially in a position to unseat Infosys from the number two spot. Cognizant has been growing at around 40% and expects to maintain at least 30% growth levels going forward. India’s IT industry is a cutthroat place and image matters: If investors start deserting Infosys, its share price would likely decline further and analysts may downgrade the company, which could impact acquisition and retention of clients.

Infosys officials say the firm missed the guidance due to volatility in the market. “Never before have we seen such high volatility in clients’ spending decisions,” chief financial officer V. Balakrishnan says. “Things can change by the day. This is the new normal.” Infosys CEO S.D. Shibulal echoed Balakrishnan’s comments. “We are executing on our Infosys 3.0 strategy, which is meant to deliver high-quality growth in the medium to long term,” Shibulal notes. “We are making investments and have put in place a structure to deliver on this strategy.”

In another negative indicator, Infosys has frozen salary hikes this quarter. The company had recruited 45,000 people in 2011-2012, but the target for this year is lower at 35,000. But this is not as big a drop as it seems. Last year, 25,826 employees quit the company so the net addition was only 19,174. Infosys officials say that the departures were mainly in its business process outsourcing (BPO) arm, where attrition rates are very high across the industry. At TCS, meanwhile, the gross hiring target for 2012-2013 is 66,000, according to Enam Securities.

The earnings news has raised some questions about management and corporate governance at the company. On the positive side, the Infosys has inducted senior banker and ICICI Bank stalwart K.V. Kamath as non-executive chairman. The public face of the company for many years — N.R. Narayana Murthy — continues as chairman emeritus.

Infosys was set up in 1981 by seven entrepreneurs led by Narayana Murthy, who was CEO of the company for 21 years until he stepped down in 2002. He was succeeded by Nandan Nilekani, one of the original seven. Two of the co-founders left along the way. Another one retired last year. Two others — S. Gopalakrishnan and current incumbent Shibulal — have followed Nilekani to the CEO seat. When the going was good, nobody questioned this arrangement. Now that things are turning a trifle sour, some observers are wondering whether all of the founders — or even four of the seven — were really qualified to lead. Kamath, whose mandate is to look into such HR issues, will be charged with finding an answer.