Infosys, Indian IT giant, goes against tech stock grain

Indian IT giant Infosys has had a big few weeks.

New British Prime Minister Rishi Sunak, who took office on October 25, is the son-in-law of founder N. R. Narayana Murthy—and the company saw stocks rise in the middle of the month after a stronger-than-expected quarterly earnings report, but still urged caution due to the fluctuating market.

“While the overall demand environment continues to be healthy as reflected in broad-based growth and robust large deal pipeline, we also see signs of cautious behavior by clients due to macro concerns,” CEO Salil Parekh told investors during an October 13 earnings call.

Like all tech companies, Infosys is running up against an economic environment that’s seeing customers pull back expenses and rethink software investments. Microsoft and Alphabet, two giants in the industry, have reported weak earnings, driven by advertiser revenue drying up and an uncertain global economic outlook heading into the holiday season.

Exception, rule, etc. Infosys numbers for 2023 Q2, which ended September 30, are more encouraging than those of its peers. The company reported an increase in net income of 11% to 60.2 billion rupees (around $747 million as of November 2022), beating a Bloomberg survey analyst prediction of 59.02 billion rupees (around $733 million). According to Parekh, worldwide the company is taking in 61.8% of its revenue in digital services, and over $1 billion in revenue just from its cloud services last quarter.

Infosys also reported that the company has seen solid growth and that big deals for its IT and cloud services are still rolling in, though Parekh cautioned investors on the earnings call that “we see emerging concerns in high-tech and telecom industry segments in the form of reduced spend especially towards discretionary programmes.”

Of particular concern going forward is how the energy crisis in Europe will affect the continent’s tech spend. Infosys expects some reduction in spending that could harm the bottom line. Still, as Parekh said on the call, “We did not see any project cancellations in the quarter. We saw some slowness in discretionary spend within the macro segments.”

More money, more salaries. Major tech stocks have declined on low earnings reports and companies are reporting a sluggish economy is slowing growth. But workers in the IT sector are unlikely to see a corresponding decline in hiring and salaries.

The Asia–Pacific region is facing a shortfall of over 2 million IT jobs, according to the 2022 ISC2 Cybersecurity Workforce Study. A report from CompTIA on the market in the US showed that employers are still aggressively searching for help.

With that backdrop, it’s not surprising that Infosys followed up its earnings report with an announcement that it had given a large number of employees a 10%–13% raise, with some top performers pulling in an increase of 20%–25%. The raises are about employee retention and cutting costs in the long run, Infosys’s EVP and head of HR, Krish Shankar, told India’s Mint.

“If you look at it as an industry, when you hire from outside, you must pay a minimum of 20–25% premium,” Shankar said. “Therefore, we got to also ensure that our internal top performers are not losing out.”—EH

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