In the lawsuit, Jack Palmer, an Infosys employee in the United States had said he was retaliated against by the company after pointing out what he said was the misuse of U.S. B1 visas.
The outperformance in Infosys lifted market sentiments. The BSE Sensex jumped over 100 points and the broader Nifty index marched towards the key 5,400 mark in early trade.
"While, the litigation risk is not completely eliminated, we think this ruling will likely calm most investor concern, though we expect political rhetoric to remain elevated with the presidential election a couple months away," wealth management firm Robert W Baird said.
The dismissal of Mr Palmer's lawsuit, however, has no bearing on the grand jury probe against Infosys for which the trial comes up in September. In May, Infosys said it and some of its employees had been named in an investigation by a grand jury of the US District Court for the Eastern District of Texas. The investigation is looking into the company's use of various visas. Infosys has said it is cooperating with the investigation.
"Decision is a short term positive given that lack of a trial and the resulting potential for negative press coverage, in our view. However, the issue remains unresolved, as we note that a grand jury investigation of INFY's visa usage is still outstanding," US based banking major Wells Fargo said.
Besides the grand jury probe, Infosys also faces a similar lawsuit from a former employee. Satya Dev Tripuraneni, who claimed he quit his job after harassment following his reports of visa abuse, has filed another whistle-blower lawsuit against Infosys earlier this month in California.
"Given that there has not been a definite outcome to the other two proceedings yet, we do worry that the sensitive nature of employment visas, especially in a presidential election year, will continue to weigh on sentiment. Infosys should be able to offset some risk from protectionist political rhetoric by stepping up domestic hiring," global investment banking major William Blair said.
Infosys shares closed off the day's high, rising 2.5 per cent at Rs 2,409 on the BSE. They outperformed the broader BSE IT index, which gained 1.8 per cent.
(With inputs from Thomson Reuters)