Why second half of FY16 could be challenging for Infosys

Lesser number of working days and furloughs, especially in sectors like insurance and retail, could have an impact on Infosys performance in the second half of the ongoing fiscal, Infosys COO UB Pravin Rao has said.

The third quarter is traditionally weaker for IT firms as business is impacted by low volume growth amid Christmas and New Year holidays and furloughs in the US and Europe.

The US and Europe are key markets for the over $ 140 billion Indian outsourcing sector. "Historically, for the industry the second half growth has been relatively lower compared with the first half... Q3 you typically have lower working days, furloughs... for us, Q4 has also been challenging in the last couple of years," he said.

Rao added that this time, particularly in the October-December quarter, the company expects to see these factors in other sectors as well.

"Apart from the traditional furloughs in industries like manufacturing, which we have already factored in, this time we are also anticipating furloughs impact to be much larger in couple of other industries as well which historically we would not have seen in the past and there are are certain client specific things as well," he said.

So, based on the visibility, the second half would be challenging, he added.

The company has maintained its guidance in constant currency terms at 10-12 per cent growth, but the dollar revenue growth forecast has come down to 6.4-8.4 per cent from the 7.2 to 9.2 per cent. Infosys today reported a 9.8 per cent rise in consolidated net profit to Rs 3,398 crore and 17.2 per cent growth in consolidated revenues (to Rs 15,635 crore) for the July-September 2015 quarter.

Rao said banks continue to face cost pressure and so, Infosys anticipates some challenges especially in the insurance sub-segment of banking, financial services and insurance (BFSI) vertical.

"Retail has done well this quarter but we expect retail to be volatile... telecom continues to be a bit of struggle as well. Most telecom companies are struggling for topline as well as bottomline and are looking for ways to grow revenues," he said.

BFSI accounted for 32.8 per cent of the company's revenues with 27.2 per cent coming from banking and financial services and the remaining 5.6 per cent from insurance.

Manufacturing contributed 23.8 per cent to the quarter's revenues, while retail & CPG and telecom accounted for 14.9 per cent and 7.9 per cent, respectively.

However, Rao expects the initiatives undertaken to increase productivity and focus on areas like automation will have a positive impact.

"Vishal talked about many initiatives. Our endeavour is to make sure that we try to minimise the impact (of furloughs) and we are hopeful that many of the initiatives that we are doing will probably give us the momentum getting into Q4," he said.