Infosys’ mixed signals give cold vibes to investors

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Subscribe to enjoy similar stories. Infosys Ltd's September quarter (Q2FY25) results fell short of market expectations, leading to a nearly 5% drop in its share price on Friday. This was despite the IT major reporting a sequential constant currency (CC) revenue growth of 3.1%, exceeding consensus estimates.

Excluding the retail sector, all other verticals grew quarter-on-quarter. As anticipated, Infosys raised its FY25 CC revenue growth guidance from 3-4% to 3.75%-4.5%. However, investors were left unimpressed by the cautious tone of the management, which dampened hopes for a robust rebound in discretionary IT spending.

Read here | Infosys beats Wipro as European clients spur growth “The guidance was upgraded by just 50 basis points at the top end despite a strong 3.5% CQGR in H1, implying a muted CQGR of ~0.5% over H2FY25. This indicates that despite client pessimism bottoming out, a lift-off in discretionary spends still eludes us," Motilal Oswal Financial Services Ltd said in a report. Simply put, revenue recovery will be gradual and only in pockets.

CQGR is short for compoundquarterly growth rate. One basis point is one-hundredth of a percentage point. According to the management, there are limited signs of recovery in discretionary expenditure, particularly outside the US banking sector.

While the pricing environment is stable, the company has not seen any change in clients’ decision-making behaviour. Q3 will be impacted by furloughs, although these are unlikely to extend as they did last year. Amid this, Infosys has deferred FY25 wage hikes, which shall now be in January 2025 and April 2025.