Infosys profit signals tough times for IT cos

Written by Rachana Khanzode | Mumbai | Updated: Jan 14 2011, 18:43pm hrs
The lower-than-expected numbers coming from Infosys Technologies has set the tone for what could be a tough ride ahead for the IT industry. Just a quarter ago, top IT firms, including Infosys and Tata Consultancy Services (TCS), reported high volume growth of about 7-11%, indicating that the macroeconomic environment was turning out to be positive. TCS had also indicated that the recovery was not oneoff. To begin with, Infosys seems to have faced the heat with a volume growth of 3.1% q-o-q. The firm has pointed out that there is a concern that the effects of European Union (EU) sovereign debt crisis may spill to the US and may bring about a volatile economic and currency environment.

Economists have also pointed out the fear of a double-dip recession, with the US still reeling on a jobless rate of 9.4% in December 2010 and the EU struggling to return to growth. Infosys COO, S D Shibulal, said, It is important to view that we are operating in a volatile environment and it is going to impact on our secular trends. Budgets are getting closed marginally up though. Forrester Research on Thursday said the global IT market will grow by 7.1% in 2011, down just a tad from 7.2% growth in 2010. The high budget deficits and debt-to-GDP ratios in Italy, Spain, Belgium, Greece, Ireland, and Portugal are going to laggard the overall technology investments.

Currency volatility is going to remain major concern for the tech industry. The dollar movement can distort the expected spend trends in local currencies. The biggest impact of looking at the global IT market on a currency-adjusted basis is on the rates of growth, Andrew Bartels, principal analyst with Forrester Research said.