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Renewed US demand to lift Infosys, IT sector outlook

Reuters
Jul 10, 2013 at 07:39pm IST

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Bangalore: The strongest growth outlook for US demand for information and communication technology since the 2008 financial crisis is likely to help Narayana Murthy revive Infosys Ltd, the Indian IT giant he founded, but the updraft will also boost its faster-growing rivals.

India's second largest computer services exporter, once seen as a bellwether for India's $108 billion IT industry, derives 62 per cent of revenues from North America, a larger share than competitors Tata Consultancy Services Ltd (TCS.NS), HCL Technologies Ltd (HCLT.NS) and Wipro Ltd (WIPR.NS).

Technology consultancy Forrester Research forecasts an improving economy to spur US businesses and government bodies to increase information and communications technology purchases by 6.1 per cent in 2014, the steepest gain since growth of 5.8 per cent in 2010, which followed a contraction in demand during the global financial crisis.

Renewed US demand to lift Infosys, IT sector outlook

The development is likely to revive Infosys Ltd, which derives 62 per cent of revenue from North America.

Growth in 2013 is forecast at 5.7 per cent.

"The demand environment is now quite solid," said Ganesh Natarajan, CEO of mid-sized Indian IT outsourcer Zensar Technologies (ZENT.NS). "This is the right time for all the pent-up customer demand." Infosys last month returned Murthy to the helm more than a decade after he stepped down as chief executive to help reverse falling market share and end two years of disappointing results.

The Bangalore-based company, which reports its June quarter results on Friday, has struggled to reap the rewards of an initiative to generate a bigger share of its revenue from proprietary software, and has lost market share to Tata Consultancy and HCL in recent quarters.

CONCERNS OVER US VISA RULES

Several analysts expect Infosys to retain its April forecast of 6-10 per cent revenue growth for the fiscal year that ends next March. Morgan Stanley, however, last week said Infosys may cut that forecast to 4-6 per cent. Infosys' outlook lags the 12-14 per cent growth estimated for the sector in financial 2013/14 by the National Association of Software and Services Companies, an Indian industry group.

"IT services from a macro perspective is looking good. Now within the gamut of IT companies, all of them may not uniformly benefit," said Tarun Sisodia, a director at IT industry advisory firm Chanakya Niti Consultancy Pvt Ltd. Looming large over all Indian IT companies is the possibility that the United States, the sector's biggest market, will implement as early as next year new visa rules that will make it more costly and difficult to send workers there.

Infosys also faces management challenges. The head of sales said on Tuesday he had left, and investors have voiced concerns that the company is too reliant on its founders for leadership. "A people disadvantage exists today at Infosys," Sisodia said. "There is a people advantage at Tata Consultancy." Shares in Infosys have risen 4.1 per cent since Murthy returned to the company on June 1, in line with gains in the IT sector.

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