IT budgets likely to be flat to slightly lower: Infosys

Further, commenting on the issue of value added tax (VAT), Balakrishnan says, the European Union (EU) is harmonizing VAT regime across Europe, where it is like transaction cost and is paid by the customers. "This will have no impact on the company's margins." He feels VAT for non-EU service providers is not a negative and says, "We are already charging VAT in countries we operate."

Here is a verbatim transcript of the exclusive interview with V Balakrishnan on CNBC-TV18. Also watch the accompanying video.

Q: From the last time since we spoke, has there been a marked change in the demand environment. Are you feeling more optimistic about basic demand?

A: The environment has definitely changed. People are much more confident. Customers are coming to the table and talking about large transformational deals and some of the discretionary spending is happening. But customers are still cautious because the world has not changed. They are still worried about the recovery - how long it will last? So there is some kind of a cautious optimism in the minds of customers and that will reflect in the growth also.

Q: What about some of the key verticals like manufacturing and telecom? What kind of newsflow and what kind of feedback are you getting from those particular verticals?

A: If you look at manufacturing, the penetration of offshore is still very low. The impact on offshore plays will be less, even though the overall IT spending in manufacturing could be challenging because the consumer spending is not happening.

Our telecom service providers are still doing well. The equipment manufacturers are hurt but service providers are still doing well. They spending money and we're seeing good growth in telecom.