Infosys has entered into framework agreement with one of its existing strategic clients to provide AI and automation led development, modernization and maintenance services. The total client target spend over 5 years is estimated at USD 2 Bn.
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Not so good results from Infosys. They have slashed the revenue guidance for FY22–23 from 4-7% to 1-3.5% and missed the profit expectations from the market as well. The IT story is still intact and bottom fishing can be done if the IT stocks go down
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This may be the right time to increase the investment in Infosys. As this slashing of revenue guidance is not something related to Infosys internally rather its a industry phenomenon which will come on track within 2-3 quarters
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Any more details on what exactly they mean when they say AI?
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According to Stability AI CEO, Emad Mostaque, India’s outsourced coders, up to level three programmers, will likely be affected in the near future, while countries with stronger labor laws, like France, may experience fewer job losses in the software development sector.
Do you foresee any major risk for IT service revenues?
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I think it is tough for AI to completely eliminate need for coders as development is not just writing effective piece of code.
A crucial stage of development lifecycle is understanding requirements, nuances, and what the client or user is expecting.
Another important area where AI would lag will be creativity or innovation. We are yet to see an AI model thinking “out of the box” and this is where humans are still needed.
From what I see, developers will be using AI to handle the obvious/less riskier tasks to AI and spend that time saved in delivering better quality output.
The key thing for existing developers will be to become better than average at skills. Those who are doing monotonous jobs in IT sector with less scope of innovation are at risk.
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AI is around since the 1970s and is still in a very primitive stage (I work in the IT field and manage a fairly large team doing research on such topics). The threat of AI is overhyped (in the current context), and IT companies, programmers will naturally evolve to take up higher order roles (survival of the fittest). Any transformational technology will have both good and bad effects on humans. As long as the order pipeline is good for the next 3–5 years, one can continue to play the IT story
Disc: Invested and Biased
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My personal experience is little different here. I am working in Europe and my company outsourced some Microsoft technology related development to one of the Major IT co. in India ( not infy ! ) . currently onsite offshore ratio is 20%-80%. Our management is almost convinced new Microsoft AI integration can reduce the offshore support by 50% after several pilot implementation. The main improvement is in Development/deployment cycle due to lesser residual defects due to AI(mostly human error).
Even 15-20% reduction is planned for this financial year!
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One way this could perhaps be assessed is whether or not the management has the ability to pivot to make the most of this AI “opportunity”.
Infosys has made pivots in the past…the biggest of these was the pivot to digital perhaps? And in the end, it did really well.
The point is whether it can be pulled off again.
If yes, then this is a no brainer. Perhaps this is a bluechip in temporary distress kind of opportunity.
If no, then you are looking at perhaps a dull future at best.
Make a call on the ability of the management to get things right over time.
Not AI per se. (tomorrow there will be something new in any case).
Discl: Own shares.
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The biggest concern for Indian IT investors is whether outsourcing will lose its sheen due to AI or not? If it does and the tech companies get most of their stuff done through AI systems with little reliance from offshore contracts then it would shave off lots of value from the cos.
These companies have no other way to stay relevant other than leveraging before their clients figure out ways to automate. They will anyway have to save costs for their customers.
Disclosure : Infy is 1% of my portfolio
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Imho, IT companies will benefit from the ai boom for next 3-5 years… my thesis is that you need coders to write ai code so AI as a service will be the next big thing once the macroeconomic concerns ebb… depending on how this plays out, post 3-5 years period would be one to watch out for… have positions in both large and mid cap and closely tracking this space…
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IT slumps, but no need to get glum - The Economic Times IT slumps, but no need to get glum - The Economic Times
Discl: I Remain invested in TCS infosys Tata Elexi, LTTS
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Interesting piece on IT and Infosys, in particular.
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While this one deal will not change the fortunes of the IT sector, it appears (to me) that the number of big deals being signed in recent months by Indian IT companies has increased.
Perhaps this is a slight turn of momentum. Either way given the size of these companies a lot needs to happen before they gain serious momentum.
Earliest signs of that will perhaps be in the FY25 numbers…or perhaps in the last quarter of FY24.
It’s going to be a long haul…which will not be very painful as there will still be big buybacks and big dividends.
Dig in for long, perhaps.
Discl: Interested.
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Infosys has tripled its profits in last 10 years while LTI-MINDTREE has done 10 times its profit in last 10 years, and TataElxsi has done 22 times its profit in last 10 years. And both LTiMindtree and TataElxsi are reasonably big companies with good business ratios too. Keeping this in background, what are your views about replacing Infosys with both these companies?
Disc- currently hold all 3 companies and trying to reduce number of companies in the portfolio.
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Good point.
past record indicates that Long term capital appreciation for a sound mid cap company appears much better than large cap.
But Large Cap IT like Infosys and TCS distributes good dividends and share buy back on a continuous basis year after year.
volatility in general is high in case of midcap stocks than large cap in case of a meltdown. Tata Elexi is a different cup of tea.
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Agree with you. Volatility is high in midcap IT. But the virtues that you cited with Large cap IT are not reality. In last both buyback of TCS as well as Infosys, price has not recovered. If i remember correctly buyback of TCS was at 4500 in Feb2023 and price today also is around 3500. And personally i invest for growth in share price of company, not much fan of dividend.
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