Infosys Technologies Ltd on Friday reported a better-than-expected increase in net profit through the fiscal first quarter, but the bellwether software stock plunged 7.2 per cent on a warning about “challenging times ahead” for the company.
The Bangalore-based company, India’s second largest software services exporter, said net profit rose 21 per cent to Rs 1,302 billion ($303 million) in the April-June period.
“We are definitely seeing a more challenging environment,” Chief Operating Officer S.D. Shibulal said, adding most clients planned to keep their IT spending either flat or slightly lower than last year.
"We are seeing bad news coming out of banking and retail. There are delays in decision making.”
US-based banks and financial institutions are key clients for Infosys, but they have had to make huge write-downs after widespread loan defaults in that country triggered a financial turmoil.
Infosys earnings underscored how a worsening slowdown of the global economy was hurting Indian companies.
Operating margin fell to 30.4 percent in April-June period from 32.5 percent a quarter earlier due to inflation-driven wage increases and visa costs, and Shibulal said some of his western clients were asking for a cut in fees that the company charged for outsourced services.
Although, Infosys is trying to shed its dependence on US clients and has been looking to expand in continental Europe, it has yet to see substantive order flows from there.
“Unlike in US, the decision making process in the continent is slow,” said, BG Srinivas, head of Europe operations, adding it is unlikely to see any major increase in work orders from Europe in the near term.