Infosys Ltd. forecast sales that lagged estimates and warned customers in key sectors like finance are pulling back, a sign of how far corporations are tightening their budgets to weather an economic slowdown.
India’s second-biggest software services firm expects to post revenue growth of between 4 per cent and 7 per cent this fiscal year ending March 2024. That compares with an average analyst estimate of 10.6 per cent. The company’s US-listed shares fell 10 per cent in New York trading. India’s markets are closed Friday.
“During the quarter, we saw unplanned project rampdowns in some of our clients, and delays in decision making, which resulted in lower volumes,” Chief Executive Officer Salil Parekh said at a post-earnings press conference. “While we saw some signs of stabilization in March, the environment remains uncertain.”
Infosys and its peers in the tech services industry are seen as a bellwether for corporate spending, showing how companies are preparing for the future. Parekh flagged several sectors where the retreat is more pronounced.
“Some industries such as financial services in mortgages, asset management, investment banking, telecom, high-tech and retail are more impacted, leading to uncertainty in spend and delays in decision-making. The US is more impacted than Europe,” he said.
Nilanjan Roy, chief financial officer, elaborated on the challenges.
The financial services sector was “impacted by budgeting delays at the start of the year, led by macroeconomic uncertainties coupled with softness in mortgages and asset management and investment banking,” he said. The manufacturing and energy sectors are ramping up spending, he added.
Demand for Indian software services boomed during Covid-19 as enterprises turned to technology to sustain their businesses. But a reopening of economies and consequent return of workers to offices have seen demand slide from its peak. Russia’s war on Ukraine and fears of a recession have also spurred caution among sectors from banking to retail.
What Bloomberg Intelligence says
“Software companies have already seen a reduction in demand from enterprise clients and Infosys may also see a similar pullback. However, we do expect the company to grow faster than most of its peers given its large digital footprint," Anurag Rana, senior analyst said.
Infosys and bigger rival Tata Consultancy Services Ltd. lead India’s $245 billion software services industry. TCS’ quarterly profit Wednesday missed analysts’ estimates with the outsourcer saying some clients were deferring discretionary projects.
For the quarter ending March, Bengaluru-headquartered Infosys posted a net profit of Rs 6,130 crore ($749 million), a rise of 7.7 per cent over the previous year, it said in a stock exchange filing Thursday. Analysts expected a profit of Rs 6,613 cr. Sales rose 16 per cent to Rs 37,440 crore.
Infosys’ large deal total contract value stood at $2.1 billion in the three months to March.
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