Infosys Limited?s new non-executive chairman KV Kamath has said that the company needs a ?course correction? in its strategy, given the nature of global developments over the last two months. In an exclusive chat with FE, he said that the financial services segment of the western world will remain under pressure for the next five years and Infosys needs to respond by expanding in verticals such as healthcare, government and telecom to retain its competitive edge.
Banking and financial services (BFSI) forms the largest chunk of Infosys? revenues, contributing more than 35% to its $6 billion revenue kitty. The sovereign debt crisis in Europe and slow recovery in the US now mean that pricing from the vertical will be under pressure, Kamath noted. Banks are cutting costs and shedding people ? Bank of America, a big customer for Infosys, could eliminate upto 10,000 positions as it tries to make up for the loses from the housing crisis.
?Six months back, we laid out a strategy for Infosys and said that there is a structural change required. We did that. Now in the last two months, you have events in Europe and the US necessitating a check on everything you have done,? Kamath said, adding that the firm would do a ?full check of all the instruments? and do whatever course corrections are required to respond fast enough to changing realities.
?Financial services in the developed world is under pressure. Two questions come up. One, what is the likelihood of contraction in these companies and as a result, contraction in the work that comes to Infosys. I frankly think that there will be no contraction; there could be a stalling in the financial services sector and I am looking at it more as a banker than as the chairman of Infosys,? Kamath said. Western banks, he added, will see the next five years as a no-growth period, just like what happened with Japanese banks 15-20 years back.
?Interestingly, that does not mean that the existing levels of work in these banks will go down. What could happen is that as they come under pressure, they could ask for lower margins. We need to have a response for that in terms for how we can meet this aspiration of our customers while maintaining our margins,? he noted.
Over the last few quarters, market watchers have been very critical of Infosys? ability to respond fast. Analysts FE spoke to said that Infosys has got into a shell and doubted the ability of the firm?s business units to take autonomous decisions. Cognizant?s closing revenue gap with Infosys only added to the concerns. Kamath appeared confident that Infosys can be proactive, going ahead.
Since the latest crisis erupted, the company has spent a month in understanding the pain in Europe and the US. This quarter, the firm is busy looking at new opportunities. ?Readily, two things come to mind. You have got government and healthcare where we have very little presence. Telecom is a vertical where we can aspire for a better presence. (Infosys has been declining in this vertical). These are strategies you may have to re-think,? he said.
In terms of geographies, Kamath hinted that Infosys could accelerate investments in BRIC countries to offset the slowdown in the developed world. ?India and China are coming off age. The rapidity with which technological developments will happen here and at appropriate pricing is changing daily. The base of technology users is expanding rapidly whether it is companies or individuals. The ability to pay for technology has increased. The Indian government is becoming a big user of technology. There are a similar set of opportunities in China. I think every company needs to look at these two engines and quickly follow them up with a couple of other BRIC countries,? he advised.