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Bad for Infy, could be worse for others

The quarterly results of Infosys showed a crunch, reflecting a worsening of IT spending worldwide. But more ominous was its muted guidance for the fiscal year 2009/10, indicating difficult days in the visible future.

business Updated: Apr 15, 2009 22:25 IST
HT Correspondent

The quarterly results of Infosys showed a crunch, reflecting a worsening of IT spending worldwide. But more ominous was its muted guidance for the fiscal year 2009/10, indicating difficult days in the visible future.

“There has been a 3.8 per cent cut in IT spending globally which is the steepest fall ever,” said Diptarup Chakraborty, analyst at industry research firm Gartner.

“Companies have put projects related to growth and competitive edge on the backburner and are going ahead with only maintenance projects,” he said.

However, large tier companies are better positioned than smaller ones.

“I think others will do worse than Infosys as they won’t be able to manage the situation better than Infosys,” said Anil Advani, head of research, SBI Capital Securities.

Infosys has projected an annual growth in income to be between 1.7 per cent and 5.7 per cent for 2009-10.

The Bangalore-based giant has been forced to cut its service rates for clients, while spending on marketing to keep the sales pipeline buzzing.

“Pricing pressure will continue till the time volume growth does not take place,” said Advani.

“The drop in earnings growth is a result of more than expected drop of 6-6.5 per cent in the blended rate for the year 2009-10 than the fiscal 2009. The higher expenditure on marketing and drop in other income would also contribute to the earnings drop,” said Gaurav Dua, head of research at brokerage Sharekhan.

Infosys witnessed its biggest drop in revenue growth (-3.2 per cent) for the first time since 1997 (last data available) in the quarter ended March 2009.

Business volumes are down, but one research analyst said things should improve in the next six months as conditions improve in the US, India’s main IT export market.