Infosys Ltd., a leading Indian IT services company, has revised its annual sales forecast upward for the first time since early 2023, indicating optimism that emerging technologies like AI could rejuvenate corporate tech spending. The company now expects revenue to grow by 3% to 4% on a constant currency basis for the fiscal year ending in March 2025, up from its previous projection of 1% to 3%. This new forecast surpasses the average analyst estimate of 3.16%.
This positive outlook from Infosys could signal a broader recovery in the tech industry, potentially benefiting peers such as Accenture Ltd. and International Business Machines Corp. (IBM). Tata Consultancy Services Ltd. (TCS), Infosys’s larger Indian competitor, also expressed cautious optimism about the upcoming fiscal year.
“Infosys’ results suggest that the demand environment may be stabilizing and could represent an inflection point,” noted Anurag Rana, an analyst at Bloomberg Intelligence. He highlighted that the return to positive growth in the financial services sector after four quarters could drive the company’s turnaround.
Infosys shares surged by up to 4.9% in Mumbai trading, marking their most significant intraday gain since January. The stock has increased by 17% this year but remains below its 2022 peaks. Despite the anticipated 4% annual sales growth being historically low for Infosys, it marks an improvement from the stagnant revenue seen in the latter half of the previous fiscal year.
For the first fiscal quarter ending in June, Infosys reported a 3.7% increase in sales to 393.2 billion rupees ($4.7 billion) and a 7% rise in net income to 63.7 billion rupees, exceeding analyst expectations of 62.48 billion rupees.
Investors will be keenly watching IBM’s upcoming earnings report for further indications that AI and a resilient global economy are driving increased tech investments. With inflation slowing, there is speculation that the US Federal Reserve might cut rates in September. Bloomberg Economics projects a 3% global economic expansion in 2024, up from the earlier forecast of 2.7%.
India’s $250 billion software services industry, dominated by TCS and Infosys, serves as a barometer for the global IT sector, with clients across various industries. Infosys announced record large deal wins last quarter, totaling $4.1 billion in contract value.
“We had a strong performance in Q1 on volumes as well as financial services in the US,” said CEO Salil Parekh. He noted that the acquisition of in-tech GmbH, a German automotive engineering R&D services provider, also contributed to the positive guidance.
Infosys and its peers are heavily investing in machine learning, analytics, and cloud computing to modernize legacy businesses and compete with agile startups. While generative AI is seen as a promising area, companies like TCS caution that it will take time to become a significant revenue driver.
According to Bloomberg Intelligence, “Infosys raised full-year guidance more than expected, driven mostly by the acquisition of in-tech and strong execution despite challenging demand. It appears that client spending has stabilized and not worsened, particularly in the financial services sector, which is a good sign. Headcount declined again in 1Q, but the pace of decline was lower than in previous quarters and could reverse in 2H.”
Overall, Infosys’s improved forecast and strong Q1 performance provide a hopeful outlook for the IT sector’s recovery, driven by technological advancements and a stabilizing demand environment.
