IT spends in good shape; see continued strength in US, EU markets

India’s second-largest IT services company Infosys is “comfortable” with the higher revenue growth guidance of 14-16 per cent it gave for the full fiscal, as global IT spends are in “good shape” and digital focus of clients is “quite strong”, CEO Salil Parekh said on Tuesday.

Infosys’ top boss told PTI in an interview that the company sees continued strength in both US and European markets, although it is keeping a close watch on the macroeconomic environment as “these are things one has to monitor on a constant basis”.

The optimistic commentary from the Infosys management comes even amid talks that the global economy may be facing an increased risk of recession.

Many analysts have flagged higher-than-expected inflation, and some large global tech companies are already pulling back on aggressive hiring plans over concerns of a looming economic slowdown.

Parekh asserted that global IT spends are in a good shape and the digital focus of clients is quite strong.

That, along with cost efficiency and automation are acting as twin engines, he said.

If indeed the global economy faces greater difficulty going forward, automation and cost efficiency will become even more critical for companies, he reasoned.

“We had 21 per cent growth in Q1 and we have raised our guidance to 14 to 16 per cent (for full year)…We feel comfortable that we see this level of growth in this year…that’s the sort of traction, we are seeing,” he said.

Seated in his office at the sprawling Infosys campus in the electronics city, Parekh said while there has been a lot of talk and inflation is high, on the ground the July consumer spend data for the US and Europe markets indicated year-on-year improvement.

“These are different signals in the environment…consumer spend is a good number, and that is one example…that gives you some indication of what is going on,” he said.

Parekh, dressed in a blue suit and a crisp white shirt paired with a striped tie, assured that the company remains watchful and vigilant about the broader environment.

The company had admitted to seeing “softness” in certain pockets such as mortgage, but has emphasised that other segments remain unaffected.

“We are in regular contact with our each client, we try to understand what their business drivers are, and make sure we support them in that. At this stage, we don’t see any sudden shift but if and when something happens, we will look out for it,” the Infosys top honcho said.

Parekh, 58, often described as mild-mannered and approachable by those who know him, has been credited with the storied turnaround of the Indian IT giant, after the company hit a rough patch a few years ago.

Parekh took over at the helm in January 2018, after a public spat between the company board and founders on issues of governance precipitated the exit of then-CEO Vishal Sikka.

Over the last few years, Parekh has navigated challenges and steered the company back to stability.

Infosys, which competes with Tata Consultancy Services, Wipro and others in the IT services market – reported net profit of Rs 5,360 crore, or Rs 12.78 a share in the first three months of current fiscal, compared with Rs 5,195 crore, or Rs 12.24 per share a year ago.

Higher employee benefit expenses, sub-contracting charges, and travel expenses, pushed up overall costs for Infosys in just-ended ended quarter. Sequentially, the profit declined 5.7 per cent from Rs 5,686 crore in January-March quarter.

But the company surprised the market by raising its full-year revenue growth outlook to 14-16 per cent citing strong demand and robust deal pipeline.

Notably, attrition rose to 28.4 per cent in June 2022 quarter from 27.7 per cent in the previous sequential quarter. Net hiring was strong at 21,171, Infosys had said.

Elevated levels of attrition leading to higher employee costs are denting the profitability of IT players.

Although the net profit fell short of street expectations, Infosys surprised investors by raising its revenue growth outlook to 14-16 per cent from 13-15 per cent for the fiscal year ending March 2023.

Infosys’ revenue or turnover stood at Rs 34,470 crore in the first quarter of current fiscal, which was 23.6 per cent higher than a year ago. PTI