Tech bellwether Infosys warns of problems in key financial sectors

(Bloomberg) — Infosys Ltd . forecast sales that fell short of estimates and warned clients in key sectors such as finance are pulling back, a sign of how far companies are tightening their budgets to weather an economic downturn.

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India’s second-largest software services firm expects revenue growth of between 4% and 7% this fiscal year ending March 2024. That compares with an average analyst estimate of 10.6%. The company’s US-listed shares fell 10% in New York trading. India’s markets are closed on Friday.

“During the quarter, we saw unplanned project declines at some of our customers, and delays in decision-making, resulting in lower volumes,”[ads1]; CEO Salil Parekh said at a post-earnings press conference. “Although we saw some signs of stabilization in March, the environment remains uncertain.”

Infosys and its peers in the technology services industry are seen as a bellwether for corporate spending, showing how companies are preparing for the future. Parekh flagged several sectors where the withdrawal is more pronounced.

“Some industries such as mortgage financial services, asset management, investment banking, telecom, high-tech and retail are more affected, leading to uncertainty in spending and delays in decision-making. The US is more affected than Europe,” he said.

Nilanjan Roy, CFO, elaborated on the challenges.

The financial sector was “impacted by budgeting delays at the start of the year, led by macroeconomic uncertainty combined with softness in mortgages and asset management and investment banking,” he said. The manufacturing and energy sectors are increasing spending, he added.

Demand for Indian software services increased during Covid-19 as businesses turned to technology to sustain their business. But a reopening of economies and subsequent return of workers to offices has seen demand fall from its peak. Russia’s war on Ukraine and fears of a recession have also spurred caution among sectors from banking to retail.

Recession fears threaten India Tech’s dominance: Taking stock

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“Software companies have already seen a reduction in demand from enterprise customers, and Infosys may also see a similar decline. However, we expect the company to grow faster than most of its peers given its large digital footprint.”

– Anurag Rana, Senior Analyst

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Infosys and larger rival Tata Consultancy Services Ltd. leads India’s $245 billion software services industry. TCS’s quarterly earnings on Wednesday missed analysts’ estimates, and the outsourcer said some clients are delaying discretionary projects.

For the quarter ending March, Bengaluru-headquartered Infosys posted a net profit of 61.3 billion rupees ($749 million), up 7.7% from a year earlier, it said in a stock exchange filing on Thursday. Analysts had expected a profit of 66.13 billion rupees. Sales rose 16% to 374.4 billion rupees.

Infosys’ total contract value for major deals was $2.1 billion in the three months to March.

–With help from Jennifer Ryan and Mayumi Negishi.

(Updates with details of sector expenditure from the fourth paragraph)

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