IT stocks are in upheaval after the recent US debt downgrade and European credit problems. But will the sector pull through this time? Mr B. G. Srinivas , member of the board, Infosys, gave us some answers. Clients are much better placed, discretionary spends are on track and there are several pockets of opportunity even in the troubled economies, he points out. That seems to be the reason why the company has not revised its guidance for the year.

Excerpts from the interview:

How have clients reacted to recent developments in the US and Europe, in terms of their IT spends and budgets? Can comparisons be drawn with 2008?

The client reaction has not reached the panic levels of 2008. Fundamentally, if you look at our clients, barring one or two specific cases that are not doing well, across sectors we are seeing that most of their businesses are reasonably stable. They are cautious, yes, because of the macro-environment both in Europe as well as in the US. But so far, as I said, apart from one or two specific cases that are in trouble anyway and not because of the crisis, we have not seen any project closures or pull backs of the current year budgets. Caution is in the air, they are not extremely optimistic in the current environment.

But compared to 2008, clients are also well-off in terms of profitability and cash levels. As they have been consciously conserving cash, they are not in any liquidity crisis. If nothing adverse happens in the macro-environment, there will be some caution in the air for the next six months is my view.

For CY12, we have to wait and watch as the process will kick-start in early December and conclude in late January, if they don't delay the process.

Are discretionary spends on hold? Application services have been growing steadily over the past few quarters. Does it make you more immune?

There is no pull-back on discretionary spends. Our focus is on all service lines, wherever the opportunities come from. It depends on clients' business imperatives.

Some of the business imperatives, even in services such as package implementation, is to do with simplification, standardisation, eliminating redundancy in terms of multiple applications or multiple packages they have or multiple instances of the same package.

If you take financial services clients, they don't run on standard platforms, they don't run on any of the ERP packages as of now. There we are still seeing more traction coming from the traditional applications development and maintenance space. In certain other sectors such as business analytics and digital marketing, there is still spending happening, despite the fact that they are not doing too well.

What is less prone to discretion includes spending on basic production support and maintenance, IMS, where you have to run the bank or run the manufacturing process. Clients will have to spend on these, as these are required for their sustenance.

But whether new imperatives or new rollouts happen, is something we will have to wait and watch. In 2008, there was a pullback and so discretionary spending was on hold.

Now that situation probably will not arise, if the macro-environment remains stable and it is just a temporary slowdown.

Your repeat business has been going up steadily and is in excess of 99 per cent. Are you looking to mine your existing clients more, rather than target new businesses?

We have always been high on repeat business. Because of our good relationship with clients, we have been able to get a large portion of our business from our existing customers.

We are also adding new clients every quarter. With a large base of over $6 billion, the percentage of revenues from new business tends to be small, unless they happen to be billion-dollar wins. Our strategy is very clear: one, we will continue to mine our existing clients because there is so much more to do for them. We call it a ‘must grow accounts' strategy. The other is ‘must have' accounts. These are global companies across geographies and verticals, that we wish to acquire as clients. Both have growth targets. Though mining existing clients would require less investment in sales and marketing, we wish to enhance our client base.

Retail and manufacturing segments have been leading the growth for you. What is driving revenues from these verticals?

There are a couple of things we have done well in these areas. The growth in both these sectors has been consulting-led. Our investment in building capabilities in enterprise solutions and consulting services has made a significant impact.

Also, the solutions and platforms we have built in these sectors has been a key differentiator vis-à-vis our competitors. Third, in retail (and CPG — consumer packaged goods) we have won a number of large transformational projects. In the digital market place, we are the only Indian vendor, apart from one global system integrator, who get invited to participate in deals. These capabilities exist in both Europe and the US. In manufacturing, we are seeing demand from automotives, hi-tech. In Europe it is from industrial process and discrete manufacturing. We are also seeing demand for both engineering as well as IT services. In core engineering services, we have grown by 30 per cent over the last two years.

Aerospace is another area that has been somewhat immune to the slowdown.

The telecom vertical is still in doldrums. Despite increased sales of smartphones and higher data offtake across the world, mobile operators have not increased outsourcing. When is it likely to revive?

Core telecom in the US is still not out of trouble. You will not see significant increase in capex, as yet. But they are looking at transformation and trying to derive revenues from new streams. In Europe, in UK, we have seen that large telecom companies are still not doing that well. However, in the continent, there are opportunities. But these are not huge, as they will not do big programmes or anything radical.

For the near term, you will not see a significant uptake. But in the wireless space there is spending on consumer facing applications, including digital marketing, where we have won a large transformational deal of over $100 million, which is Europe-wide.

It will, however, take some time for the sector itself to turn around fully.

Despite smartphone sales increase, and increased uptake of data, in telecom, most of the IT spend has been on order management because of newer services. Very few companies are taking new initiatives as they are also strapped for cash.

The OSS/BSS services that you mentioned are executed by the companies themselves in many of the cases. When they are on high growth, they will outsource that part. Today, they may not outsource that much.

BFSI has grown at a slower pace than the company in the recent past. Your competitors who were driven by other verticals earlier have increased focus on BFSI. Is this a larger trend?

I wouldn't say it is a larger trend. BFSI is the largest spender on IT services. We have not consciously looked to slow it down.

We will continue to focus on financial services in the US, Europe and rest of the world, as it is the biggest spender and there is still potential to grow. There will be nuances in certain quarters, but there is not trend as such to go slow.

We are well positioned in both wholesale as well as retail banking and investment banking. The effect of the debt downgrade will be different on different banks. Some of them continue to do well. Europe cannot be clubbed as a single market. Could you outline your key focus geographies and verticals where demand is coming from?

For us, apart from the UK, it is France, Germany, Switzerland, the Benelux region and Nordic countries. In terms of verticals, in financial services, the UK is leading.

If you look at retail, it is coming from UK, Germany and Switzerland. In manufacturing, it is Germany, France and Switzerland. In Energy and Utilities, it is UK, Germany and the Nordic region.

We have no exposure to the PIIGS markets. Since Europe is a heterogeneous market, we did not want to spread ourselves too thin, trying to be good to everybody.

We will, however, support clients and do executions Europe-wide or even world-wide. But we will not actively seek clients in the PIIGS region.

Your utilisation is still lower than some of your peers. Is there a scope for increasing that further?

We are comfortable with a utilisation of 78-80 per cent. Just that the last quarter, it was lower, but that is not our target. We count all days while computing utilisation. There are others who will exclude vacations or leaves and will have higher utilisation rates!

Could there be any revision in your annual guidance for this fiscal?

In our view, we have not found any reasons to revise our guidance. But we are watching the situation closely.

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