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Inc. raised its annual sales forecast for the first time since early 2023, reflecting growing hopes that emerging trends like AI could help reverse a years-long slide in corporate technology spending.
Revenue will increase 3% to 4% in constant currency in the fiscal year to March 2025, Infosys said on Thursday. This compares to the average analyst estimate of 3.16%. Bangalore-based Infosys had earlier projected growth of 1% to 3%.
The forecast could raise hopes among peers such as Accenture Ltd. and International Business Machines Corp. that the industry’s malaise could soon end. Infosys’ biggest Indian rival, Tata Consultancy Services Ltd., last week expressed optimism about a better fiscal year, although it remained cautious about sustained growth momentum.
“The Infosys results suggest that the demand environment may be stabilizing and could represent an inflection point,” Bloomberg Intelligence analyst Anurag Rana said in a report. “The positive growth in financial services after four quarters stood out the most and will likely be the main driver of acceleration for the company’s recovery.”
US-traded shares of Infosys jumped 8.3%, the biggest daily increase in four years. Shares are up 21% this year but remain below their 2022 highs.
While annual sales growth of 4% is still historically low for Infosys, it’s an improvement from the second half of the last fiscal year, when revenue barely budged. In the fiscal first quarter to June, sales rose 3.7% to 393.2 billion rupees ($4.7 billion), while net profit rose about 7% to 63.7 billion rupees. Analysts had expected 62.48 billion rupees on average.
When IBM reports next week, investors will be looking for more signs that technologies such as artificial intelligence and a resilient global economy are encouraging companies to increase investment in technology. With inflation gradually easing, investors are betting that the US Federal Reserve will begin cutting rates in September. The global economy is expected to expand 3% in 2024, more than the 2.7% predicted at the beginning of this year, according to Bloomberg Economics.
India’s $250 billion software services industry, led by TCS and Infosys, is a benchmark for the global IT sector as its customers span virtually every industry, from manufacturing to the finances. Infosys said its large deals won in the last quarter reached a record high, with a total contract value of $4.1 billion.
“We had a strong performance in the first quarter in volumes and also in financial services in the US,” CEO Salil Parekh said at a press conference. “Secondly, we had very strong performance in large deals in the first quarter, which gives us more visibility in this financial year.” Infosys also completed the acquisition of in-tech GmbH, a German provider of automotive engineering research and development services, which helped with guidance, he said.
Companies like Infosys are betting big on machine learning, analytics and cloud computing to boost revenues as global companies try to transform legacy businesses to compete with nimble startups. Generative AI is also emerging as a new bright spot for outsourcers around the world, although some, like TCS, say AI will take some time to become a significant revenue stream.
What Bloomberg Intelligence says
“Infosys raised full-year guidance more than expected, driven primarily by acquisition of technology companies and strong execution despite challenging demand. It appears that customer spending has stabilized and not worsened, particularly in the financial services sector, which is a good sign. The number of employees fell again in 1Q, but the pace of decline was slower than in previous quarters and could be reversed in 2H.”
– Anurag Rana and Andrew Girard, analysts
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