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Infosys Q3 profit encourages market, Q4 outlook warns of trouble

CFO V Balakrishnan says "velocity" of business is slowing because of uncertainty in Europe and the US. Clients may have the budgets but all the bad economic news is spooking them.

twitter-logoGoutam Das | January 13, 2012 | Updated 11:01 IST

Goutam Das
Infosys, India' second-largest IT exporter, took the lid off the third quarter earnings calendar on Thursday, reporting encouraging numbers. It grew dollar revenues 3.4 per cent sequentially and beat market expectations. However, the firm's fourth quarter and full year guidance is an indicator to the hard times ahead .

Infosys has guided to a flat March quarter in dollar terms and expects to grow 16.4 per cent in FY12, a haircut of almost three percentage points from the higher end of its earlier outlook.

It is not quite the post-Lehman gloom and doom moment yet, but things have started to look shaky compared to three months back. A sampling of executive diction during the firm's media briefing in Bangalore tells the tale: "Uncertain". "Volatile". "Caution". "Constrains".

So are we heading to the 2009 era of customers hoarding cash and capping discretionary spending?

Expect all top-tier companies to report marginal declines in this category of spending with longer decision-making cycles, as customers wait and watch the macros. For low-end work, the fight for business could get clumsy with service providers offering huge discounts.

During a chat, Infosys CFO V Balakrishnan told this correspondent that the "velocity" of business is slowing because of uncertainty in Europe and the US. Clients may have the budgets but all the bad economic news is spooking them.

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Technology budgets are expected to be flat, down to 3 per cent in 2012, although the share of offshoring may go up because of cost pressures.

As of now, the firm's customers from the bread and butter banking and financial services segment are "stable", which is good news. And unlike 2009, many enterprises are also preparing for a prolonged volatility - unless there is a Lehman-like blow up or an European Union collapse - a double digit growth for the industry in FY13 is still on the cards.

Infosys has already made 14,000 campus offers for the year and expects to make another 10,000 soon - given that attrition will drop in a tough climate, the hiring numbers certainly don't foretell a doom. Infosys is pointing to a dip.

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