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Visa clamp, stronger rupee, automation hit Infy numbers in Q4

Experts say IT sector is resetting growth expectation, Infy guides for single digit growth in 2017-18

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Infosys CEO Vishal Sikka (R) and COO UB Pravin Rao in a press conference in Bengaluru
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The performance of information technology (IT) bellwether Infosys in the latest quarter signals that it is going to take a lot for the domestic IT sector to survive the headwinds of a restrictive visa regime under Trump administration, stronger rupee, protectionist economic policy in Europe and UK and automation.

The impact of these were visible in the second largest IT company’s result numbers, announced on Thursday, which showed that its net profit had dipped 2.8 per cent and revenues 0.9 per cent sequentially in the March quarter.

And expecting a tough road ahead, Infy management has also given a conservative outlook of 6.5-8.5 per cent revenue growth for 2017-18.

Ganesh Natarajan, executive chairman and founder of 5F World, feels the entire sector will “reset” growth expectations owing to the challenges that lie ahead.

“Expectation is being reset for the entire industry. My belief is that the overall growth for this year is not going to be more than 8 per cent for the whole industry,” said the former CEO of IT sector lobby body Nasscom.

V Balakrishnan, former CFO of Infy, also has a pessimistic reading of Infy’s guidance considering the current global and domestic environment.

He felt the Bangalore-based company’s guidance was not “realistic” as actual reality could turn out much worst.

“There are many internal and external challenges for the sector. I think the company must be more realistic in what they can achieve and they have to guide properly. This is the first year, Infosys has consistently, every quarter, missed the guidance. They (management) have to become more realistic on guidance and only guide on what they can achieve,” he said.

Nasscom has refrained from giving a growth forecast for the current fiscal till now due to uncertainties.

Infosys is also facing internal crisis with some of the founders including N R Narayana Murthy and the Board at loggerheads over governance issues relating to compensation and severance packages of the management.

In what could be seen as the Board assuaging the promoters’ concerns, the company announced appointment of Ravi Venkatesan, an independent director, as co-chairman.

“Appointment of Ravi Venkatesan as co-chairman will strengthen the leadership at the Board level as he is a very experienced professional,” said Natarajan.

The $10-billion tech services company also announced a new capital allocation policy under which it will return Rs 13,000 crore from its cash pile to shareholders and revised dividend pay-out to 70% of annual free cash flow from the current 50%.

Infosys, which has about $6 billion cash on its books, follows industry peers Cognizant and Tata Consultancy Services (TCS) in announcing share buyback.

“It (buyback) is a very good step but I think they could have done a much larger buyback and benchmarked it to Accenture, which returns 90% of its free cashflows every year,” said Balakrishnan.

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