We are living in a new, new-normal: V. Balakrishnan

Weak global economic climate and reduced IT budgets, along with sharp currency fluctuations, have slowed the pace of growth of software companies. In a chat with this correspondent, Infosys Chief Financial Officer V. Balakrishnan explains the challenges being faced by the industry. Excerpts:

The revised guidance comes soon after you missed your revenue forecast last year. Do you see this as a continuation of a trend?

We are living not even in a new normal but a new, new normal. World over, the uncertainty has increased tremendously. Growth is slowing down in all our large markets — the U.S., the U.K. and Europe.

How much of the revenue slowdown is due to the discounts and “ramp-downs” demanded by clients?

We are not seeing any cancellation of projects. What has happened with one client in Europe is a one-off event.

But we see delay in decision-making. Contracts go to the highest level of client corporations for the top leadership’s consent, which takes time.

Even for projects we have won, the ramp-up time is getting elongated. Clients are also breaking large smaller projects into smaller bits and saying, “You first do the first part and then we will see the rest later.”

What you see as a reduction in the first quarter is basically because of service mix or customer mix.

Can you elaborate on that?

Consulting and system integration accounts for about 31 per cent of our revenues. These segments also have higher revenue productivity. The share of revenues from these two segments has declined during the first quarter. This will impact pricing because as a proportion the share of other relatively less profitable lines of business (such as application development and maintenance) would increase.

Given that a large part of the global economic situation is financial in nature, is Infosys trying to reduce its exposure to the BFSI sector?

No. The BFSI is a very important sector for us. There are some challenges because most of the large banks face regulatory issues, arising from LIBOR pricing and mortgages. But, over the medium-to-long term, this industry will spend more on outsourcing and offshoring. This is because they are becoming more capital-intensive, and their returns are coming down. In this situation, efficiency will play an important role.

You said the increase in on-site recruitment would affect margins. How big is this challenge?

We planned to hire 1,000 persons during this year in the U.S., of which we have already recruited 700 in the first quarter. This impacted our margins by 80 basis points. But our long-term target is to localise our operations everywhere. To that extent, our dependence on visas would come down.