Infosys’ shares slid 3 per cent after the Indian IT services giant said it expected operating margins lower than the previous year’s.
The firm is forecasting an operating margin of 22-24 per cent this year, lower than previous year’s 23-25 per cent view. That fell short of investors’ expectations, Citigroup analyst Surendra Goyal said, given its annual sales forecast only managed to match estimates.
Infosys dived as much as 6 per cent Monday, its steepest intra-day fall since August. The stock, however, managed to recoup half of the losses to end 3.15 per cent lower at Rs 1,134.5
Infosys, which vies with TCS to provide back-office support for the world’s largest corporations, is investing to accelerate a shift away from labour-intensive work under new CEO Salil Parekh. India’s $167-billion IT services industry is investing in cloud computing and artificial intelligence to jump-start growth, as clients in key segments from banking to retail turn increasingly to automation.That spending on advanced technologies is pressuring margins, analysts said.
Like its peers, Infosys’ hiring costs are also rising alongside the Donald Trump administration’s immigration curbs, and the need to install and train a vast workforce unaccustomed to newer digital services. Infosys only recently emerged from a highly disruptive and public conflict with its powerful co-founder cohort, a boardroom tussle that pushed out former CEO Vishal Sikka.
“Investments in digital capabilities through 2019 will likely delay margin expansion,” said Anurag Rana, an analyst with Bloomberg Intelligence.
“Increasing US hiring and wage hikes will also hurt margin expansion but should aid the company’s long-term market position.”