Infosys, TCS woes not limited to BFSI pain alone

An electronic ticker board displaying the stock figures for Infosys and TCS at the BSE.

Infosys Ltd. has pegged its revenue growth guidance for 2023-24 at the lowest in six years. The management commentary by Tata Consultancy Services Ltd. on near-term demand is the weakest in recent history. That’s despite stellar dealmaking in the March quarter.

What gives?

“There are deal wins but that’s not translating into revenue. So there’s something wrong with the execution,” independent market expert Mahantesh Sabarad told BQ Prime after Infosys’ March quarter results.

Clearly, the pain stemming from the banking crisis in the United States—the biggest market for Indian IT services firms—isn’t limited to their BFSI vertical alone. It’s more far-reaching.

Infosys’ and TCS’ fourth-quarter results reflected the same.

Revenue in Infosys’ financial services vertical fell 3.7% sequentially to Rs 10,818 crore in the March quarter, according to its earnings statement released on Thursday. For TCS, revenue growth in the BFSI vertical fell to 9.1% in Q4 FY23 as against 11.1% in the previous quarter.

Infosys’ other revenue segments lagged as well.

• Retail business revenue rose 1.04% sequentially to Rs 5,537 crore
• Communications revenue fell 6.34% sequentially to Rs 4,411 crore
• Manufacturing revenue was flat at Rs 5,078 crore
• Hi-tech revenue growth fell 3.42% to Rs 2,989 crore

“During the quarter, we saw unplanned project rampdowns in some of our clients, and delays in decision-making, which resulted in lower volumes,” Infosys CEO Salil Parekh said at the earnings presentation on Thursday. “While we saw some signs of stabilisation in March, the environment remains uncertain.”

“We are working closely with clients. Their connect will help us massively,” Parekh said. “As the environment has changed, we see strong interest from our clients for efficiency, cost and consolidation opportunities, resulting in a strong large deal pipeline.”

TCS, however, performed well in other business segments. Growth in the March quarter was led by retail (13%) and healthcare (12.3%), while manufacturing and communications grew 9.1% and 5.3%, respectively.

To be sure, pain in the BFSI vertical was visible after the December quarter itself, when its contribution to the revenue mix of Infosys and TCS fell below the 30% mark. In the quarter ended March 31, the slippage hasn’t really been that much, Sabarad said.

“The BFSI slippage was in a way known but what has really hurt them [Infosys and TCS], in terms of overall delivery, is rampdowns in other business verticals,” Sabarad said. “I believe the story doesn’t merely end at client rampdowns. There seems to be some problem with execution.”

Infosys’ revenue fell 2.28% sequentially in the March quarter, while TCS’ rose by a mere 1.6%. TCS clocked a total contract value—or new deal wins—of $10 billion during the quarter. Infosys signed large deals worth $2.1 billion.

“We don’t see the banking crisis exacerbating going ahead, as the (U.S.) government has stepped in. It doesn’t in any way compare with the 2008 recession,” TCS CEO designate Krithi Krithivasan said during the company’s earnings presentation on Wednesday. “It’s difficult to say whether there’s more pain left in the BFSI space, but there’s no structural pain. Sentiment and macros, that’s what we are more focused on.” Bloomberg