CHENNAI : Indian IT bellwether Infosys’ financial results for the last quarter of FY17 on Thursday, while disappointing enough in isolation, might be even more so if taken as a sign of how the sector is doing and what will it do going forward. While opinion is split on whether challenges facing the sector such as the unfavourable policy push in its largest market, the US, are more damaging than opportunities that beckon, analysts are unanimous in saying that Indian IT will have to steer through “choppy waters” during the next few quarters.
These opinions have only been buttressed by Infosys’ fourth consecutive downward revision of revenue guidance to 6.5-8.5 per cent for the current financial year. CEO Vishal Sikka, while stating that guidance is “not cast in stone”, did admit that the environment was “challenging, with increasing digitisation, commoditisation of services, and geopolitical concerns”.
All three are set to be a drag on top-line growth. “It is definitely a challenge going forward as top-lines are impacted,” pointed out Raja Lahiri, partner and IT expert at Grant Thornton India.
Infosys’ quarter-on-quarter revenue growth in rupee terms fell 0.88 per cent and profit fell 2.8 per cent during the quarter.
While the Trump administration’s war on H-1B visas and the uncertainty arising from Brexit are already weighing on margin forecasts as costs increase and demand moderates, experts see the ongoing transformation in business models and practices as a bigger problem. “There is a new world order now. A new way of approaching business,” pointed out Anand James, head of research at Geojit Financial Services. “Companies will have to do well in cost cutting and consolidation. Especially because good projects may be hard to find in the next year.”
They have already started doing so, shifting from “scale to skill” in manpower strategies, pointed out Raman Roy, chairman of industry body Nasscom. “Our biggest challenge during the next three to five years is to have a workforce that can enable this shift.”
However, the immediate few quarters are unlikely to see IT firms finances grow as fast as in earlier times. “A certain moderation in pace of growth is happening and will continue to happen,” pointed out Lahiri. While, Nasscom has decided not to release a growth forecast for the year, it does acknowledge major headwinds. “There is a global softness in demand and many indeterminates — such as in US visa policy. This is one of the reasons Nasscom has chosen to defer our growth forecast for the year to May; so we have better clarity,” admitted Roy.