Infosys shares down 1.1% on RBS effect

Venkatesh Ganesh Mumbai | Updated on January 17, 2018


The Royal Bank of Scotland’s decision to shelve its IT deal with Infosys may have hit the Indian company’s stocks on Tuesday but the development could have a ripple effect on many such projects for the IT sector and result in more ramp downs.

Royal Bank of Scotland announced last week that it will no longer pursue its plan to separate and list a new UK standalone bank, Williams & Glyn (W&G), and will instead pursue other divestment options.

Infosys, which had been providing consulting, application delivery and testing services, said that due to this decision, Infosys will carry out an ‘orderly ramp-down’ of 3,000 persons, primarily in India, over the next few months. Infosys stock fell 1.1 per cent and closed at ₹1,050. Others like TCS, Wipro and HCL all saw a similar fall in stock prices.

Industry watchers pointed out that this development could result in more bad days for companies as well as employees. “It is definitely worrisome and the announcement does not inspire confidence about the capability of Indian outsourcing companies,” said Sanchit Vir Gogia, Analyst at Greyhound Research.

Infosys has had several ‘rampdown’ problems with its clients in the last few months. In its first quarter results, CEO Vishal Sikka cited concerns over a couple of clients in North America and Europe.

A large part of the problem has to do with the existing business (contributes in excess of 70 per cent), which, is getting rapidly commoditised and outsourcing companies’ inability to adapt to cloud computing and other technology changes. “Many customers are asking for price discounts in commoditised services and are not willing to pay premium in this business environment,” said Peter Schumacher, CEO, Value Leadership Group.

Then there are technology-related shifts that enterprises are going through such as cloud computing, which helps companies to rent instead of own a piece of software. “Cloud computing is changing the rules of the game very fast and companies are grappling with it as it changes the revenue model for system integrators completely,” said Gogia.

Apart from commodification, there are macroeconomic factors such as Brexit, which is forcing clients in the UK to defer decision making when it comes to spending on IT projects.

Published on August 16, 2016

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