Delays in decision-making, clients cutting back on spends: Why Infosys sees a bleak year ahead

In the short term, Parekh said they see clients stopping or slowing down transformation programs and discretionary works — particularly in financial services in mortgages, asset management, investment banking and payments, and in telecom. “We also see some impact in the hi-tech industry and in parts of retail,” he said.

Also read: Infosys slashes FY24 revenue guidance to 1-3.5%, profit increases 11% YoY

In the meeting with analysts, Chief Financial Officer Nilanjan Roy said the decline in guidance, among other reasons was due to lower-than-expected volumes and lower mega deals in discretionary areas.

He said that at the previous guidance, the upper end of the guidance had a larger amount of mega deals and the lower band was based on base volume, which would primarily be seen in the first and second quarters. “We’ve seen discretionary spend cuts here and that softness extends into Q2 as well,” he said.

For the lower end of the guidance of 1 percent, Parekh told analysts that the approach is focused on what the company has seen “in terms of volumes, discretionary projects in Q1 and overlay of mega and large deals we’ve won and estimate we’re looking at.”

“Some start dates have moved out, volume and discretionary projects slowing is in quarter… we saw the 1 percent in terms of the lower end of the guidance when we combine that,” he said.

Also read: Infosys headcount shrinks by 6,940 in Q1FY24, employee count declines for second consecutive quarter

Parekh maintained that there is still a good pipeline of large deals and that there is work in cost takeout, efficiency and automation in consolidation.

Infosys posted a disappointing set of numbers in Q4Fy23 and had missed its guidance for the previous year too -- at the time over a one-time impact of a project cancellation as well as deferrals and rampdowns. The IT major said that things had started looking up in March, but the demand environment going forward was uncertain. Green shoots are yet to be visible, despite the company saying that the pipeline is healthy.

In the last two quarters, Parekh has called out softness in parts of hi-tech, retail and telecom as well as parts of financial services such as asset management, investment banking and mortgage.

New deals

Its large deal TCV is up from last quarter’s $2.1 billion to $2.3 billion. In the same time period last year, it had a TCV of $1.7 billion.

During the quarter, Infosys made announcements of two mega deals as well as updated the exchanges about the spend for an existing client. The company signed an MoU with British multinational BP for a deal pegged at $1.5 billion, and another with Danske Bank of $454 million (which could be ramped up to $900 million). Earlier this week, Infosys informed the exchanges that it entered into an agreement with an existing client to provide AI and automation-led development, modernisation and maintenance services, where the spend would be $2 billion over five years.

Analysts earlier told Moneycontrol that the growth of the industry will drop with the mix of deals considerably skewed towards cost-saving and self-funded modernisation, but that there is a significant pipeline for these deals.