Infosys Ltd. fell its most in about three months after a cut to its annual sales forecast spurred renewed concerns that companies will hold off on technology spending for longer than anticipated.
(Bloomberg) — Infosys Ltd. fell its most in about three months after a cut to its annual sales forecast spurred renewed concerns that companies will hold off on technology spending for longer than anticipated.
India’s second-largest software services exporter slid 10% in early trading. That followed a selloff that drove rivals such as Cognizant Technology Solutions Corp. and Accenture Plc lower in the US.
Infosys said Thursday it now expects revenue to grow between 1% and 3.5% in the year through March 2024, compared with the 4% to 7% growth it projected previously. Analysts on average had expected 7% growth. On Friday, several brokerages including Equirus Securities cut their recommendations on the stock.
India’s more than $245 billion software services sector, led by Tata Consultancy Services Ltd. and Infosys, is struggling with a hazy growth outlook as a Covid-induced boom in outsourcing fades. Still, Bengaluru-based Infosys remains optimistic about its long-term prospects as companies adopt new technologies such as generative artificial intelligence.
“In the short-term, we see some clients stopping, or slowing down transformation programs and discretionary work. This is especially so in financial services, in mortgages, asset management, investment banking and telecom,” Chief Executive Officer Salil Parekh said at a news conference. “We also see some impact in high-tech industry and in parts of retail.”
Infosys ADRs Slump After Cut to Revenue Forecast: Street Wrap
Infosys was the last among large technology companies in India to report earnings. Its shares had fallen 4% this year, before Friday’s slump, trailing a broader Mumbai market that’s gained 11%. Mumbai-based TCS cautioned last week that enterprise customers were delaying projects that weren’t critical to business.
What Bloomberg Intelligence Says
A sharp reduction in Infosys’s full-year sales-growth outlook indicates a much more challenged corporate IT-spending climate, and we expect this to persist for at least the next 12 months. Though fiscal 1Q24 sales growth in constant currency only slightly missed consensus, we’re alarmed by the magnitude of the cut to full-year guidance provided just three months ago. Sales growth was the weakest in communications and financial services verticals, driven by clients pulling back on new IT projects.
– Anurag Rana, senior analyst
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For the first fiscal quarter ending June, Infosys’s net income rose 11% to 59.45 billion rupees ($726 million), lagging estimates. Sales rose 10% to 379.33 billion rupees. It reported an operating margin of 20.8% for the quarter, compared with an average estimate of 21.1%.
India’s showpiece outsourcing industry began by offering cheap back-office solutions to some of the world’s biggest corporations, giving rise to the term “Bangalored,” and became critical to businesses as it handled problems such as the Y2K bug for them.
It is now banking on the rise of big data, AI and machine learning to drive business transformation deals and earn higher margins.
The company is doing around 80 generative AI projects with clients and has trained 40,000 executives in the technology, Parekh said. He also expects revenue from some recent deal wins to come through toward the end of the financial year.
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