US fiscal stimulus will keep IT downside in check: Infosys

BENGALURU: Infosys CEO Salil Parekh said the fiscal stimulus that most western economies have announced, especially the US, is a huge positive for the IT industry. The comment comes in the backdrop of the pandemic and lockdowns that have caused consumer demand to collapse around the world.

“We don’t see any of our clients in that situation (bankruptcies) as there is tremendous amount of fiscal support in the US market. There is nothing that we see today that makes us believe there is a concern,” he told TOI in an exclusive interaction. However, there have been some requests for price cuts and credit extensions. And Parekh admitted that there will be some near-term challenges. “We don’t have a good estimation and that’s part of the reason why we suspended (revenue) guidance,” he said.

The US government’s massive $2-trillion stimulus is expected to provide liquidity to companies, including banking and financial services that are the biggest outsourcers of IT.

Infosys gets 31% of its revenue from banking, financial services and insurance (BFSI). HDFC Securities Institutional Research analysis of H-1B visas issued to Infosys indicates that nearly half of the company’s top 20 customers are in the BFSI space, including American Express, Citibank and Wells Fargo.

While BFSI will gain from the stimulus, Infosys admitted in its recent earnings call that the vertical would be impacted negatively due to lower interest rates, deferred loan payments and low premiums. It said the card and payments business will be soft as customers spend less.

Asked how the pandemic compares with the 2008 global financial crisis, Parekh said, “This has affected everyone, every geography, every sector at the same time. In a way nothing in the recent experience that seems to be equivalent in that sense. Medical conditions essentially have to be satisfied for this to abate,” he said.

The pandemic has come just as Infosys crossed the midpoint of its three-year turnaround plan. Infosys finished the 2019-20 financial year with a strong 9.8% constant currency growth in revenue despite the slowdown in March because of Covid-19. The company had more than $9 billion in total contract value (TCV) in FY20, which is 44% higher than in the previous year.

There has been some discussion on whether customers would look to reduce their dependence on India, particularly for BPM, given the disruptions in these operations because of lockdowns. Parekh thinks if there is any impact, it will be on the smaller players. “In terms of the remote model itself, my sense is this approach is giving some new ideas. On-shore, 98% of employees are working from home today. In India, it’s overall 93%, including BPM. Our sense is, because of the strength we have demonstrated in the way we have transitioned and the overall strength of the company, many large clients are going to focus on Infosys, and some of the smaller players will lose out on that. That is one of the ways large enterprises can have good control in this situation,” he said.

Parekh said clients are seeing Infosys as a stable partner with a very strong financial position, $3.6 billion in cash reserve. “They are looking at vendor consolidation and we think we will be beneficiaries,” Parekh added.

Asked if the pandemic could make customers invoke penalty clauses and how such clauses might evolve in the future, Parekh said Infosys has had no situation as of now “that is challenging between us and our clients.” He said there’s also no new evolution of risk clauses, though some changes could emerge as people learn from this pandemic. “This has happened with such speed that the focus on both sides so far has been to see how to maintain service delivery,” he said.

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