On March 13, when Infosys chief executive SD Shibulal told an investors meet that it expected full-year sales “to be near the lower end” of its guidance, the shares of the country’s second largest software services firm tanked sharply before staging a mild recovery. The uptick, in part, was attributed to the markets factoring in NR Narayana Murthy’s tried-and-tested formula of “under-promising and then over-delivering”. The markets were proven right on Tuesday, when Infosys reported better-than-expected margins and profits for the March quarter, though sales were flat. More importantly, the software major said its dollar revenues are likely to grow at 7-9 per cent in the current fiscal, sending its shares higher by over 4 per cent in early trade.
The street was expecting a 6-8 per cent revenue growth guidance for this fiscal. What is noteworthy is that while the company has posted a better than expected profit, the revenue has fallen on a sequential basis, reflecting the cautious tone struck by the company in the guidance offered by it earlier last month.
Also, despite lower revenues, the growth in the bottomline has been attributed to measures taken to curb costs. Improvement in margins for the March quarter, which have gone up by 46.6 basis points to 25.5 per cent, reflect that. The overall bullishness is reflected in the higher dividend payout of 40 per cent of profit as compared to 30 per cent that the company has been giving out previously.
The upbeat Infy numbers are also important as they kick-off the fourth quarter earnings season, which most Indian companies expect to be a reasonably productive three-month period. Improved forex earnings in the fourth quarter and growing optimism about a reformist government taking over post the general elections are expected to bolster the outlook of companies.
The banking and capital goods sectors are, however, expected to be a drag while oil and gas, IT and pharmaceuticals are predicted to do well. Revenues of banks are expected to moderate as growth in advances slowed last year, while in the capital goods sector, the larger companies, could pull down the overall performance.
Anil is a senior editor based in New Delhi.