‘Reduce’ rating on Infosys, target Rs.2,350
Demand environment in Europe remains particularly challenging, while that in North America is mixed with some sectors tracking fine.
Increasing centralisation of decision-making and involvement on multiple CXOs on IT spend decisions have led to elongated decision-making cycles. Clients remain cautious on committing funds to large discretionary programmes — this has to do with continued lack of confidence on revenue growth across sectors in developed markets, even as balance sheets are healthy and cost structure under control.
In our conversation with the new CFO, Rajiv Bansal, we could understand that clients, greater involvement of third-party advisors, intensified competition among Tier-1 vendors and increasingly challenging supply-side differentiation have all led to sustained commoditisation (essentially price-point based decision-making by clients) of several traditional non-discretionary service lines like AM and transactional BPO.
There is deal activity in the market, providing opportunities for growth. The challenge is that a lot of these opportunities come with a margin tradeoff and/or a need to use the balance sheet. However, the tradeoff has not showed up in relative margin performance — companies growing faster have done better on margin performance as well.
Even as Infosys remains committed to its
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