Infosys Shares Drop as Investors Question Pace of IT Recovery

(Bloomberg) — Sign up for theIndia Edition newsletter by Menaka Doshi – an insider’s guide to the emerging economic powerhouse, and the billionaires and businesses behind its rise, delivered weekly.

Most Read from Bloomberg

Infosys Ltd. shares declined after its sales forecast fell short of analysts’ estimates, signaling any recovery in demand for information-technology services is gradual.

The stock fell as much as 5.4% in Mumbai on Friday, the biggest intraday drop since August, after Infosys predicted revenue growth of 4.5% to 5% for the fiscal year through March. That compared with the average analyst estimate of 5.6%.

While Infosys raised its sales forecast and its earnings topped estimates, analysts are predicting a slow recovery for the IT services business. Overseas clients slowed spending on software services in 2024 as elevated interest rates and armed conflicts in Eastern Europe and the Middle East created uncertainty. This year, easing inflation in the US boosts chances of rate cuts that would leave clients with bigger budgets for IT projects, but any H-1B visa curbs and protectionist barriers by Donald Trump’s administration could weigh on outsourcers’ business.

Last quarter, revenue growth was driven by “third-party items bought for service delivery, which drove concerns around quality of the beat and raise,” Morgan Stanley analysts said in a note, adding a recovery is set to be more gradual than previously projected.

For the three months through December, Infosys’ net income rose 11% to 68.1 billion rupees ($787 million). Analysts expected 67.7 billion rupees on average, in a traditionally weak quarter for outsourcers due to furloughs. Sales rose 7.6% to 417.6 billion rupees.

“What we are seeing is a clear change in the discretionary activity in financial services, in retail and consumer products, which gives us good confidence,” Chief Executive Officer Salil Parekh told a news conference at the company’s headquarters in Bangalore.

Clients in the US, Infosys’ biggest market, expect the economy to do well, giving the outsourcer confidence, Parekh added.

Bigger Indian rival Tata Consultancy Services Ltd. last week said 2025 is looking better for business than the past year as customers seem more confident about IT spends than in previous quarters and deal cycles are shortening.

What Bloomberg Intelligence Says

“It (Infosys) could gain greater visibility in customers’ discretionary tech budgets the next quarter, which may support a recovery over the next 12 months.”

– Anurag Rana, analyst

Click here for the research.

Infosys and TCS have traditionally helped clients in North America and Europe cut costs by offering cheap back-office solutions. India’s $250 billion IT industry is now betting on automation, cloud computing and generative artificial intelligence to win bigger business transformation deals from multinationals such as Apple Inc. and Boeing Co.

Infosys will hire more than 20,000 graduates in the fiscal year through March 2026, Chief Financial Officer Jayesh Sanghrajka said.

Shares of Infosys are down about 3% this year after climbing 22% in 2024.