Infosys, Wipro revenue forecasts fail to impress investors

Infosys, Wipro revenue forecasts fail to impress investors

Technology

Infosys, Wipro revenue forecasts fail to impress investors

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BENGALURU (Reuters) - Indian software services providers Infosys and Wipro issued revenue forecasts below analysts' expectations, suggesting a broad-based recovery in global tech spending was yet to take hold.

US-listed shares of Infosys, which have gained more than 35% in the past six months, fell 2.5% as its second-quarter profit also missed estimates due to higher costs. Wipro shares were also down by a similar percentage.

While India's IT firms have seen a recovery in spending from banking, financial services and insurance (BFSI) firms, which account for about a third of their revenue, they are yet to see clients in other industries loosen their purse strings.

Infosys CEO Salil Parekh said the US interest rate cut and an easing inflation point to higher spending. "Certainly, in financial services, we have seen that but we wait to see that in other industries," he said on Thursday.

The comments come a week after industry leader Tata Consultancy Services flagged weakness in its mainstay US market.

Infosys, which registered its best growth in the BFSI segment in seven quarters, raised its full-year revenue growth forecast to 3.75%-4.5% from 3%-4%. But it maintained its margin forecast for the year at 20%-22% on wage hikes.

"The forecast for both companies is a bit lower than expectations and that's getting reflected in the US-listed shares. The street was expecting 4-5% for Infosys, and a bit higher for Wipro (in Q3)," said Shaji Nair, analyst at Sharekhan by BNP Paribas.

Wipro sees third-quarter revenue ranging from a decline of 2% to staying flat.

Infosys' second-quarter revenue rose 5.1%, higher than the 4.7% increase expected by analysts on average, while its profit of 65.06 billion rupees came in below the average estimate of 68.06 billion rupees.

"Infosys is a clear-cut stand-out among all the major IT players," KR Choksey analyst Dipak Saha said, citing its strength in North America. But he was less optimistic about its peers.

"These companies are still not talking confidently about discretionary spend."

Wipro's 0.6% revenue growth in the BFSI segment was its first since March 2023. In terms of geography, revenue from the US and Canada, two key markets, also registered growth.

"Wipro's recovery may lag compared to the other two firms as they have new leadership," said Pareekh Jain, founder of IT research firm EIIR Trend.

While Wipro's overall revenue fell 1%, that was less than the 1.1% drop analysts had expected. LTIMindtree's revenue rose 5.9%, just shy of analysts' 6% growth expectation.

Earlier this week, HCLTech, the No.3 IT services company, raised the lower end of its full-year revenue forecast.

Unlike its larger rivals, LTIMindtree missed quarterly revenue estimates. Its profit rose 7.7% to 12.51 billion rupees, edging past analysts' estimate of 12.25 billion rupees.