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Infosys raises revenue growth forecast on strong outsourcing demand

India's second-largest software exporter's first-quarter profit beats estimates

Infosys expects revenue to grow 8.5% to 10% in the fiscal year that began on April 1, compared with 7.5% to 9.5% it forecast in April.   © Reuters

MUMBAI (NewsRise) -- Infosys, India's second-largest software exporter, raised its dollar revenue growth forecast for this fiscal year after posting a better-than-expected quarterly net profit on Friday, underscoring the strong demand for outsourcing despite an uncertain macroeconomic environment.

Infosys said it expects revenue to grow 8.5% to 10% in the fiscal year that began on April 1, compared with 7.5% to 9.5% it forecast in April. That's in constant currency terms, which eliminates exchange rate fluctuations. The company reported a 9% rise in revenue on the same terms last year.

Analysts had expected the Bengaluru-based company to keep its previous forecast, or at worst trim it amid a stronger rupee and persisting global economic uncertainties.

The growth in the first quarter was "quite broad-based," Salil Parekh, Infosys chief executive, told reporters at a news conference. "Most of our segments are now growing in double digits. We see a lot of traction because the digital capabilities that we have invested in are the things that our clients are focused on."

The total value of large deals was the highest ever at $2.7 billion in April-June, the company said. That compared with $1.6 billion at the end of March.

New York- and Mumbai-listed Infosys is limping back to normalcy after Parekh took charge more than a year ago, following a boardroom tussle that rocked the company for months. Its performance, and that of its peers, has been helped in recent quarters by surging investments in new internet technologies such as cloud computing and artificial intelligence.

Infosys' outlook contrasts the view of global outsourcing advisory firms such as Gartner and ISG, which had over the past two days raised concerns about businesses tapering IT investments. Gartner, on Wednesday, cut its growth outlook on worldwide IT spending to 0.6% from 1.1%.

A trade row between the U.S. and China and fears of Britain exiting from the European Union without a trade deal have stirred fears of a slowdown that may damp client spending on technology. In February, India's National Association of Software and Services Companies held back its annual forecast for the nation's $137-billion software exports industry, citing the uncertain global economic environment.

On Monday, India's largest outsourcing company Tata Consultancy Services reported a better-than-expected profit.

Infosys' net profit for the first quarter grew 5.3% to 38.02 billion rupees, while its revenue grew 14%. Analysts were expecting the company to post a profit of 37.05 billion rupees, according to Refinitiv data.

The revenue growth was aided by the acquisition of a majority stake in the mortgage services arm of ABN AMRO Group for 127.5 million euro at the end of March. Its revenue from the financial services segment grew more than 9.5%.

The banking and financial services sector has been a cause of concern for the outsourcing industry as most banks in the U.S. remained wary of outsourcing, while a volatile capital market in the Europe further added to its woes.

Infosys said it is witnessing "softness" in the capital markets segment in the U.S. and Europe, though that has been offset by the growing opportunities in the cards and payments and retail banking sectors.

The company also said it has revised its capital allocation policy to distribute 85% of free cash flows, cumulatively over a five-year period. It was earlier returning to shareholders up to 70% of free cash flow as dividend and buy backs.

Ahead of the results, Infosys shares gained 0.9% in Mumbai trading, while the benchmark S&P BSE Sensex lost 0.2%.

--Dhanya Ann Thoppil

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