Interview | Infosys CEO Salil Parekh on growth momentum, demand for digital and cloud capabilities, and more

"Today, there's a tremendous amount of demand for those digital and cloud capabilities. And as you saw in the last quarter, that's now more than half of our business and growing at about 30 percent. Given that sort of attraction, it will have good continuing momentum for some time," Salil Parekh, CEO & MD, Infosys told Moneycontrol in an exclusive interview. File Photo.

Infosys CEO & MD Salil Parekh seems to have the Midas touch because when he took charge in January 2018 he set out a three-year target to transform the IT major, and on the face of it, it looks like he has delivered.

The company, which has been growing at a faster clip compared to rivals such as TCS and Wipro in the last few quarters, is confident about growing revenues in double-digits, on the back of robust demand for digital and cloud capabilities.

"Today, there's a tremendous amount of demand for those digital and cloud capabilities. And as you saw in the last quarter, that's now more than half of our business and growing at about 30 percent. Given that sort of attraction, it will have good continuing momentum for some time," Parekh told Moneycontrol in an exclusive interview.

"Our view is, many large enterprises are now looking at it not just to improve various components of their performance, but also to look for growth from their own customers, increase the efficiency of their supply chain, and make sure that their connection with their people is much more agile, stronger," he added.

Edited excerpts from the interview:

You have often said that you will go from stability to investment to momentum to acceleration; so is the acceleration phase here to stay? Will it continue beyond FY22?

What you are describing is what we have put together over the past few years really making sure that we are building out all those capabilities in digital which our clients are looking for. My sense is today there is a tremendous amount of demand for those digital and cloud capabilities and as you saw in the last quarter that is now more than half of our business and growing at about 30 percent. Given that sort of traction, my sense is that will have good continuing momentum for some time.

Of course, it means we have to continue to keep the capability building going and work closely with clients to make sure that we are delivering what their needs are, what their digital and cloud transformation programmes are. At the same time making sure our employees are getting all the reskilling to make of all these programmes happen.

So are we then staring at a multiyear cycle of double-digit growth, because in recent interactions you have spoken about how IT has moved beyond a cost driver to a business driver for global corporations. So are we looking at a multiyear cycle of double-digit growth something that will perhaps continue for FY23, FY24 and so on?

There I think you are right; our view is that many large enterprises are now looking at IT not just to improve various components of their performance, but also to look for growth from their own customers, increase the efficiency of their supply chain, make sure that their connection with their people is much more agile and stronger and those are more in the nature of investing for the growth, for the transformation of their large enterprises. We think that sort of a trend will continue for some time.

Many large enterprises are now looking at IT not just to improve various components of their performance, but also to look for growth from their own customers and increase the efficiency of their supply chain

Would this have happened sooner for Infosys if not for the pandemic, or do you think it has happened because of the pandemic? How do you really see that equation?

There if you see a year before we had a growth rate of 9.8 percent, a year before that 9 percent, now our guidance is already a very strong guidance in the range of 4-5 percent. We think that this sort of growth is very much part of what our three-year programme was, how we built capabilities and how we are working closely with clients on their transformation journey.

Of course, when initially the COVID situation unfolded last year in March, all of the things slowed down. But we are seeing many of the industries which were impacted early on, especially the large companies in those industries, are growing back and back with more technology spend and so each quarter our growth has expanded and with that we see more and more coming in the future.

My sense is we adapted to the COVID situation in the March-April timeframe, so in that sense it wasn’t that it was independent of what was happening and with that adapting and with all of the capabilities we have built we see much more traction today. But of course, at a global level economies have to catch up where they were before COVID, but all of the policy work, stimulus are definitely helping the economies together.

How are budgets getting funded for digital? Are clients perhaps taking budget from marketing or other areas and tactically spending it on digital? Where are these budgets really being carved out of?

There are really few places where that spend is coming from. One which is another important part of the approach we have put in place which relates to automation is a big play in how large enterprises are looking at their technology spend. So for example today we have built over the past several years about bots -- these bots do much more automated work in technology than it was being done in the past. When these are deployed with our client’s environments the overall cost for large enterprises in terms of their technology where these are deployed is lower and some of that strength is then used by large enterprise clients to go and build their digital portfolios or their digital and cloud transformation journey.

Then there is a whole bucket which is what we were discussing earlier which comes from investing for growth. So it is not a replacement of cost in that sense, it is much more how do we at large enterprise grow with our customers, what are the huge markets, what are the new distribution channels that we can access and that is another area that large enterprises could look to for diverting investment into digital.

What impact could the tectonic rise in the IT industry have on the rest of the economy because usually there is a chain reaction. For every one job that gets created in IT you have perhaps two jobs getting created in sub-contracting, facility management services, other services and so on. So could we see this in a sense lifting the economy, the fact that IT companies are seeing this scorching pace of growth, something that is going to continue into the next financial year as well?

Absolutely, I think to the proportion of how IT contributes to the economy this will be a big beneficiary to the overall economy and of course the overall economy is also seeing very good traction for the coming financial year. But the contribution from the IT sector as you point out is beyond just the jobs in the IT industry, it is all of the things that are supporting around the IT industry and to the proportion that we are part of that economy which is very significant that will become more and more apparent.

You were talking about the tectonic shift that the growth in IT companies would have on the economy in terms of job creation, in terms of the multiplier effect, can you expand on that because IT usually has a huge change reaction when it comes to investment, consumption and spending?

To the proportion that IT industry is contributing to the economy given that there is a good growth across the industry that will continue because there is additional benefit beyond the IT industry and job creation and that will continue into the economy as this happens over the next financial year.

Many people feel that remote working might do away with a lot of supervisory roles; some of these supervisory mid-management roles may become redundant. So do you see the nature of jobs also changing?

We see the change coming in how people are working. As you described, remote working or work from home, there is a tremendous amount of flexibility that is now within the system. Clients are open to it and very supportive. Our own infrastructure enables it. However, we don’t see any redundancy.

In fact, what we are seeing is with the growth we will have more and more people joining the IT industry and that scaling will require more roles at every level because there will be more projects to manage, there will be more work with clients, and there will be more support of all of those activities. So, in that sense, we don’t see the redundancy, but we do see a change in the way people are working.

We see the change coming in how people are working. As you described, remote working or work from home, there is a tremendous amount of flexibility that is now within the system

I think all of those plans are proceeding as we had shared both from promotion and salary increase perspective. We will always look at anything beyond that as the time comes because really my sense is employees have contributed massively in the way the overall company has done, but also in a very difficult environment – while yes everyone is working from home, it has some pluses and it has some challenges, and people within Infosys have really risen to the occasion. So all of those things are in full motion and we will see all of the impact in this quarter as we had previously announced.

So should I take that as a yes, should the lakhs of Infosys’ employees perhaps prepare for another special incentive coming their way?

We will decide within this quarter or over the next few quarters if we do something like this. There is nothing for me to announce today in that area. But very much the salary increases, very much the promotions are fully in motion. We are very open to doing everything we can which will support and help the employees.

Some people believe that the growth might taper in the second half of the year because IT companies may not be equipped to handle these digital budgets, it might go back to niche providers such as EPAM. What do you make of this scepticism? Is the growth here to stay or is this something that IT companies got because of the pandemic, because clients were really looking to offload some work to their existing vendors?

My sense is at Infosys we are quite confident and comfortable with how we are seeing this financial year. We have already increased our growth guidance. We see very good traction with large enterprises and clients. In fact, what we are seeing is, large enterprises are looking for a partner that can do all of their work together. So make sure that their current technology landscape is looked after, but also integrate with the digital transformation and the cloud transformation.

So, in fact my sense is Infosys is probably better positioned than many others to do all of those. Hence we have confidence in this financial year and we have given a high-level review that next financial year will see double-digit growth.

While hikes and increased travel is likely to impact margins, you have often spoken in the earnings about how you will leverage other strategic levers. What are these levers likely to be because your offshore is already high, your utilisation is already at 85-86 percent. So, what could these other levers be?

You may know that in one of our sessions last year in November, we had played out a set of strategic levers; for example how we would look at what we do across our pyramid, how we would look at sub-contractor expenses, how we would look at more and more value creation in different elements of digital. There are separate levers that have been outlined in that session. Our sense is those strategic levers will continue to be of importance in the years’ to come. Of course, there were several one-time benefits that we got in this financial year. Some of those will go away in the coming year and coming quarter, but these strategic levers we will continue to help us.

This is also your first interview after Biden has officially taken charge as US President. Initially at least it seems to be encouraging. He has taken away most of what Trump has done with respect to H4 visas, he has delayed the change in processes for H1B visas. So are you overall confident about deploying employees from here, applying for visas? Will that continue or will you still continue to step up local hiring? How do you see this panning out because so far at least signals seem to be pretty positive compared to his predecessor?

As we had shared before, our model is built on working with various scenarios. Of course, we have built a very good model around localisation, but we also have a very good model where we have a lot of people working on different visa situations as well. Given where we are in the cycle, my sense is Infosys will be able to work in this set of scenarios and policy decisions as well if not better as we worked in the past because our objective is really to build a business that works under multiple scenarios. Yes, we will make sure that all of the current guidelines is something we fully support and adhere to, but even so we will make sure that our business model remains resilient for the future direction.

Infosys co-founder and chairman Nandan Nilekani in recent months has spoken about how crucial it has become to build an optionality when it comes to building business models, taking decisions, etc. So I am just curious to understand how has this changed the way you make decisions, you build businesses, are you bringing an optionality as Nandan Nilekani said into various initiatives, strategy, the way you look at Infosys?

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Absolutely. I think what Nandan has shared is a way of looking at the business world making sure there are multiple scenarios or as you call optionality in how you look at the outcome. We have gone through an extremely difficult period as a global economy over the last 11 months but also going ahead, we are building within Infosys, a situation, a business which will look at and thrive under multiple scenarios. Our approach there is to make sure that those options are evaluated and then you are prepared depending on how the world around us evolves to execute on that within a broad framework, which is working very closely with our clients on digital and making sure that all of the rescaling is going on with our employees. So absolutely, that approach makes a lot of sense and it is something we have implemented within how we look at the business at Infosys.

Something more topical that is making news this week – the government is thinking about a four-day workweek, it may allow companies to go ahead with a four-day workweek giving employees three days off but the working hours are likely to remain at 48-hours, if and when this comes into effect, will you welcome it, how you will see it, will it really make a difference considering 97-98 percent of your employees are still working remotely, how do you see this evolving?

It is quite early in the discussion. Our approach will be to support whatever direction the government puts together. What we see in our own workforce is a tremendous ability in this new environment to work from home, work remotely and have a hybrid or flexible model and also there is tremendous enthusiasm for learning new skills and making sure that they are relevant for our clients.

So at the end, our employees are very self-driven in how they are looking at what they need to do in working with our clients. With that enthusiasm of our employees and whatever regulations the government would put, we will make sure that we will align to it and working with our clients to make anything work for them.

The other very fascinating thing that has held everyone’s attention is crypto and bitcoin. Tesla last week was in the news for spending $1.5 billion to buy bitcoins, they are saying they will accept payment in bitcoins, how do you see this evolving? Will Infosys come to a stage where a significant portion of your cash will go into bitcoins or will this be in conflict with your environmental, social and governance (ESG) - carbon-neutral goals because a lot of people believe bitcoins are bad from an environmental perspective? How do you see this, any thoughts on this at all?

There we have no plans to put any of our cash into bitcoins at this stage. Of course we will evaluate in the future how the world evolves. Our ESG growth is very robust and very clear, we have very strong targets for 2030, we have also announced that we were carbon neutral as you saw last year, so we have a strong commitment to our ESG goals going forward and it has been a history and the culture of the company for many years. So that is how we will approach it as we look ahead.

The regulatory environment surrounding bitcoins and crypto in India is also very uncertain at this stage, you never know what is going to happen?

Yes. There are guidelines that are evolving. So as those evolve, we will look at them as well.

How does your day begin and when does it end?

The thing that I have noticed in these last few months is the level of connect we have with our clients has increased and given in one way that there is no travel, there is a lot more of these sort of connects through the video platforms and we have many clients that are on the west coast, so invariably things go pretty late into the night but I have a routine in terms of morning work, a little bit of exercise routine and end through the day in work and meetings and discussions. So in that sense a little bit longer but one difference is there is no travel, so it balances out.

Any productivity apps that you particularly like, anything that works for you that you would like to tell us about?

From my perspective, I am not a big user, it is about being a little bit more efficient with how we look at time and how we work across different teams respecting each other’s time commitments that seem to be the most critical element but no specific app in that sense.

Infosys said that they are going to hire at least 24,000 freshers this year; what are the one or two things that you will look at when someone applies to you for a job or if you have to interview a fresher?

The key thing from my perspective when we look at normal graduates or across any other level – my own sense is if there is a desire to continuously learn, a desire to work hard at delivering what we are looking for the clients. Those are the two key elements - in addition of course to many different skills which come and then you evolve into different skills overtime. To me the more fundamental points are more about are you someone who want to continuously learn and someone who is willing to work hard in support of all the clients be it in their environment.

You have been pretty social media shy but any thoughts on joining Clubhouse, all the CEOs in Silicon Valley, investors seem to be spending a lot of time there, will we see you on Clubhouse anytime soon?

Clubhouse is an extremely powerful platform. My own sense is - my attention is focused on working with our clients and our employees. So at this stage, I have chosen not to participate but I am certainly someone who observes it and I could see the interviews a couple of weeks ago, it is always fascinating to see what is going on.