Q&A: S Gopalakrishnan, CEO & MD, Infosys

'Clients have started focusing on growth'

Infosys’ Q3 results might have disappointed the market, but its CEO and MD S Gopalakrishnan sees no reason to be unhappy. He says the next financial year will be a normal one for the Indian IT services industry which is reflected in the clients’ budgets. In an interaction with Bibhu Ranjan Mishra and Pradeesh Chandran, he details the strategy the company has put forth for the coming financial year. Edited excerpts:

Your client addition during the quarter at 40 was quite healthy. Which are the growth spots?
We are witnessing all-around growth. But we are actually optimistic about North America, especially the US, and the rest of the world. We have some short-term concerns about Europe. We are pro-actively investing in Europe as we believe the region will be a very important market for Infosys in the medium to long term because the aggregate IT spending there is actually equivalent to the US.

Most of your clients have finalised their budgets. What are the messages you are getting from them?
These (budgets) are slightly up or may be, in some cases, flat, which is actually positive. Otherwise, we believe it’s a normal budget cycle, which to me indicates that the year is going to be normal. We are also witnessing spending on the discretionary side. Companies have started focusing on growth as compared to costs during the downturn.

Which are the industry segments you believe to be future growth drivers?
We are expecting significant growth in verticals like retail and BFSI. Even the spending pattern is different for each of them. In retail, investment can be seen in digital consumer and digital marketing since a number of advertisements are moving toward digital medium from print. In banking and capital market, the investment is going towards mobile commerce, mobile technology and risk management. M&A continues to be the driver for expenditure by banking firms.

This is the third time this year you have revised the guidance. Is the phase of volatility still on?
We said we would be cautious in the guidance, recruitment and capacity building. But if growth opportunities come, we will grow faster. This year, we saw that opportunity came and thus revised our guidance upwards.

What factors impacted your volume growth this quarter? It was 3.1 per cent compared to 7.2 per cent last quarter and 7.6 per cent in Q1.
We achieved a good volume growth of more than 5 per cent in the last three quarters. Normally, you would expect a budget flush in the last quarter of the calendar year. This year, however, most companies exhausted their budgets in the early part of the year, which is why the spending got impacted this quarter. That is just a short-term phenomenon.

Your focus had been the Fortune 1,000 clients.
Of the 40 clients we have added this year, several of them are Fortune 500 companies and Global 1,000 clients. Our model is that when a relationship starts, it starts small and then we start building it, which usually takes 12 to 18 months time. This is quite normal. Most of our top 10 clients started small, and those accounts have grown subsequently. This is why our repeat business is very high, around 97 per cent.

But are the project sizes getting smaller? Is this going to be a trend?
It is a relative term. In this quarter, we saw project sizes becoming shorter, partly because clients have spent most of their budgets in the early part of the year. Secondly, in an uncertain environment, clients don’t make long-term commitments. While the overall programmes are actually quite large, the commitments were made for shorter periods – three to six months. Sometimes, projects might be given to multiple suppliers. That is something we have to live with or we have learnt to live with.

Markets have reacted very sharply to your financial performance this quarter?
I don’t want to comment on the market.