Infosys expects to recover from last quarter’s disappointment

Infosys, which said in August it’s ramping down about 3,000 staff after losing a key RBS contract, is down about 11% since ratcheting back its sales forecast the month before


Infosys expects growth to bounce back from last quarter’s disappointing showing but warned that the IT services industry will take a short-term hit from Britain’s decision to depart the EU. Photo: Hemant Mishra/Mint
Infosys expects growth to bounce back from last quarter’s disappointing showing but warned that the IT services industry will take a short-term hit from Britain’s decision to depart the EU. Photo: Hemant Mishra/Mint

Bangalore/Hong Kong: Infosys Ltd. expects growth to bounce back from last quarter’s disappointing showing but warned that the IT services industry will take a short-term hit from Britain’s decision to depart the European Union.

Infosys, a barometer for the health of the $3 trillion global enterprise IT spending market, slashed its annual sales forecast in July, reflecting the economic uncertainty that’s roiling India’s outsourcing giants from Tata Consultancy Services Ltd. to Wipro Ltd. chief executive officer Vishal Sikka said Britain’s unprecedented move however presents a longer-term opportunity for companies like Infosys that can help banks and corporations prepare their systems for the transition.

“We will know more” in the run-up to Infosys’ next quarterly earnings report, Sikka told a small group of analysts during JPMorgan’s investor conference in New Delhi that was webcast by the company. “What I could say is that we see our Q2 growth will be higher than Q1 growth.”

Sikka didn’t specify whether it was referring to quarter-on-quarter growth or comparisons to the year earlier.

Since taking the reins in August 2014, Stanford alumnus Sikka has presided over a surge in Infosys’ value and been credited with helping his company outshine larger rival Tata. But technology spending is expected to taper off as clients gauge the impact of Brexit and the US presidential elections, hurting IT services companies.

Also Read: Is Infosys facing a leadership crisis?

Investors are taking heed. Shares in TCS have fallen roughly 5% since warning last week that US financial clients were trimming IT budgets. Infosys, which said in August it’s ramping down about 3,000 staff after losing a key RBS contract, is down about 11% since ratcheting back its sales forecast the month before.

Sikka remains a big believer in transforming Infosys’ sales culture through encouraging employees to think creatively about solutions rather than pushing stock services. He also spearheaded investments in areas from cloud computing and mobile to social media and data analytics.

But he’s fighting larger forces to some extent beyond his control. Worldwide IT spending is forecast to be flat in 2016, according to Gartner Inc. Businesses looking to save are turning to technology such as internet-based software, eschewing the traditional options that Infosys provides. Then there’s Brexit.

“The immediacy of the impact of this is a negative,” he said. “‘Over time, this will become an opportunity.”

Persistent global uncertainty will hurt the short-term consulting projects and software implementation that giants like Infosys provide, said Anurag Rana, an analyst with Bloomberg Intelligence.

“Cloud and analytics remain the only major growth driver for the industry, which might not be enough to offset these weaknesses,” he wrote. “IT services vendors are turning to automation to offset some of the margin pressure on legacy IT work. However, some of these technologies are still in their infancy and may take a few years before providing significant benefits.” Bloomberg

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