Infosys Ltd

NYSE:INFY

Earnings Call Transcript 2023-Q2

[Rishi Basu, executive]

A very good evening, everyone, and thank you for joining us physically this time at our second quarter results press conference. My name is Rishi, and on behalf of Infosys, I'd like to welcome all of you, our friends from media, our leaders from Infosys. We are delighted to host you today.

A couple of house rules before we start. [Operator Instructions]

With that, let me invite our Chief Executive Officer, Mr. Salil Parekh, for his opening remarks. Over to you, Salil.

[Salil Parekh, executive]

Thanks, Rishi. Good afternoon, and welcome. It's always good to have all of you here on the campus. And I'm sure you're also enjoying being back in person and being at our campus. So thank you for being here.

Our Q2 performance was strong, with year-on-year growth at 18.8% and sequential at 4% in constant currency. Growth in Q2 was broad-based, with all industries and geographies growing in double digits in constant currency. This momentum is accompanied by a strong pipeline of large deals and the highest large deal value in the last 7 quarters at $2.7 billion. 54% of this is net new.

These elements are a clear reflection of the deeply differentiated digital and cloud capabilities we have developed that are highly relevant for our clients' strategic priorities. Our digital revenues are now 61.8% of our overall revenue, and they grew at 31.2% in the quarter in constant currency terms.

While digital continues to see strong growth rates, we are seeing, this quarter, acceleration in the growth trajectory of our core services. This is due to our industry-leading automation capabilities and reflects an interest among clients towards cost optimization programs. We also see this in a large deal pipeline, with strong focus on cost reduction programs in addition to the digital transformation programs in the pipeline. While we generally do not share the specific amount of our cloud revenue, we are delighted to share that in Q2, our cloud revenue was larger than $1 billion, showing tremendous strength of our cloud services, especially our industry-leading Cobalt capability.

Our strong growth was accompanied by operating margin expansion of 150 basis points, where we had an operating margin in the quarter of 21.5%. This stemmed from cost efficiencies, optimization in large deals and currency benefits. Our attrition has been decreasing now for 3 quarters on a quarterly annualized basis, including now in Q2, and we see this trend along a downward trajectory.

In keeping with the capital allocation policy, the Board has announced a share buyback of INR 9,300 crores and an interim dividend of approximately INR 6,940 crores.

With that, let me open it up for questions. Rishi, over to you.

[Rishi Basu, executive]

Thank you, Salil. Joining Salil is Mr. Nilanjan Roy, Chief Financial Officer, Infosys.

With that, we'll open up for questions.

[Rishi Basu, executive]

The first question is from Ritu Singh from CNBC-TV18.

[Ritu Singh]

A quick question on your guidance that you've given. From 15% to 16% of revenue, you've tightened it further to about 14% to 16%. The upper end remains the same, but if you could give us a sense on what made you tighten the guidance. And also your share buyback, you have the option to go all the way up to 18,000 as we understand. Why capped at about 9,000-odd that you've done?

[Salil Parekh, executive]

So on the guidance, we've had an incredible large deals performance in this quarter at $2.7 billion. We've had strong momentum, 18.8% growth in the quarter. We continue to see good traction. We also see that there is some caution. Last time, we had mentioned that we saw some caution in mortgages, in financial services. We talked about retail. We now see some caution in high tech and in telecom.

Keeping all of those factors, the positive factors and the global macro factors, we have decided to make our guidance narrower at the higher end of the band that we had. So it was 14% to 16%, and now, it's 15% to 16%.

On the share buyback, let me request Nilanjan to address that.

[Nilanjan Roy, executive]

Yes. So on the share buyback, of course, the Board considers a lot of factors. But coming to a specific point on the maximum, since it is an open market offer, it's limited to 15% of the share capital and reserves, which is about INR 9,400-odd crores, give or take. So we -- the Board has decided a figure of 9,300.

[Rishi Basu, executive]

Thank you. The next question is from Anish Jain from ET NOW, and Anish has sent a question on text.

What has supported the margin performance? What are the levers to improve margins hereon? Deal win is strong at $2.7 billion. Going forward, do you expect clients to cut spends of this run rate of over $2 billion? Will that continue? Will FY '24 also see double-digit growth?

[Salil Parekh, executive]

Let me start with a couple of them. The margin, Nilanjan will come back on.

On the deal wins, I think this is an incredible performance from the company. $2.7 billion is a very large number. We have a very strong focus on large deals. And 54% being net new, that gives us a really good platform for what we see in the future.

Now, large deals, we've always maintained that these are volatile. Some quarters, the numbers are high, some are low. These are not a very predictable outcome. But in general, if you look over a 4-quarter period, we have a fairly good large deal momentum. Our pipeline for large deals remains quite strong today, and it's in a good position. So we feel comfortable with where we are in the market. Just to add the macro comments that I made in the earlier question, those obviously still hold.

[Nilanjan Roy, executive]

Yes. So on the margin, we've improved from 20.0% to 21.5% sequentially, which is 150 basis points improvement. We got 70 basis points out of that because of the currency benefits. All currencies versus the dollar, as you know, depreciated as well. And of course, there was a cross-currency impact, so that gives us 70 bps. So we got 90 basis points from cost optimizations, and of course, you're aware of the levers we deploy in terms of the pyramid, in terms of automation, in terms of on-site/offshore pricing.

So between that, large deal optimizations and other costs which we have been able to take out are partly offset by utilization. We've got about 90 bps from there. We've got about 40 bps from reducing our subcons, again, a cost lever, which we've been trying to attack. That gave us 40 bps. And this was offset by about 40 bps from comp-related because some of our comp hikes were rolled out in 1st July, as we mentioned. So all in all, we got 150 basis points improvement.

If you see from the guidance perspective and as we had mentioned in the last earnings call, we had said we will be at the bottom end of our '21, '23 guidance. We are now looking at our first half performance. We have, for this year, at least tightened it to 21% to 22%, and we expect to be at the bottom end of that band.

[Rishi Basu, executive]

Thank you. The next question also on text is from BQ Prime. Sajeet Manghat asks, for Salil, can you elaborate on the demand environment in the U.S. and Europe in context of the geopolitical events in Europe and the macroeconomic challenges seen in the U.S.? What is the exposure to Europe, especially Germany? And how do you see the TCV pipeline?

And for Nilanjan, similar question on margins again. How do you see the trajectory for margins given weak traditional H2? And what is the kind of leverage available with respect to bench utilization?

[Salil Parekh, executive]

So on the demand environment, what we see is -- on the macro front, what I shared earlier, which is we had indicated last time we started to see some concerns in the mortgage side, in financial services. In the retail industry, we are seeing, this time, some concerns on high tech and in telecom industry in addition to those. These are more on the discretionary part of our pipeline. We also, at the same time, seeing a strong large deals pipeline, which gives us some confidence. We've pivoted, and I think the market itself is also pivoting the clients where there's more and more interest in automation and cost efficiency, and we see that coming through within our pipeline. We've seen growth both in digital, over 30%, and in core, which shows that both of our engines are working quite well.

In terms of U.S. and Europe, today, in Q2, we had a very strong growth in Europe, over 30%; strong growth in the U.S., over 15%. We continue to see the pipeline between both of those geographies today but also keeping in mind that we are being watchful given the macro environment developing.

[Nilanjan Roy, executive]

So on the margins, as we look at second half, we've ended the first half at about 20.7%. And like we've guided at the bottom end of the 21% to 22%, so of course, margins for the second half will have to go up. And of course, we have our levers in terms of our utilization, which is one the factors mentioned because we are really at the bottom end of our utilization. As we put a lot of pressures into the system now, they are sitting on the bench, but over a period of time, they will start getting deployed. So this will become a tailwind. As attrition starts coming down, of course, this will be a benefit in terms of stretch salaries. So that's one of the other things which started helping us.

So I think we've -- in this range of 21% to 22%, we are quite comfortable for the full year as well.

[Rishi Basu, executive]

Thank you. The next question is from Zee Business, from Kushal Gupta.

Kushal, question for Salil. Europe's growth has been great with 28.5% constant currency growth. Is there actually no issue with client IT budgets for the next year amid the fears of recession?

And for Nilanjan, operationally, the performance has been great. What were the key factors behind this and the outlook ahead?

[Salil Parekh, executive]

On Europe, I think we've had a very good traction in Europe for the last several quarters, and that is shown again in this quarter's growth number. We continue to see the pipeline of large deals. It's strong, but we are also cautious and watching the macro development. But today, our pipeline looks good, and our guidance for the full year, therefore, is at 15% to 16%.

On the operation, Nilanjan?

[Nilanjan Roy, executive]

Yes. The operation, of course -- as we have mentioned, of course, we have a good margin story. But I think even beyond that, our ability to absorb freshers and making sure that they are trained, they are picking up new skills, putting them into projects and then, over a period of time, start rotating them. So because this talent pipeline for us, we knew in the long run was the only way this industry would grow, right, other than rotational churn. And therefore, in fact, in the first half, we've already done, I think, close to 40,000 of the freshers across the company in all streams.

So we are quite hopeful in terms of absorbing the freshers, putting them through their paces and then start putting them into large deals and other deals as well. So that's been a big learning for us during this entire process.

[Rishi Basu, executive]

Thank you. The next question is from Chandra from Moneycontrol.

[Chandra Ranganathan]

I just want to ask you about the net employee addition number. I mean it's usually a good lead indicator of growth. And that has come in at 10,000, I think, which is what -- compared to 21,000 in the previous quarter. So what does it say about the growth going ahead? I mean because, on the one hand, you sound confident. But is this also a sign of caution? What are you hearing from clients and conversations? Because other companies are saying, at least in Europe, the discussion is only about how they're going to manage the winter. So if you can give us a sense of what you're hearing from North America as well as Europe.

Nilanjan, a question on the margin guidance. You've kind of tightened it at the upper end. At a time when supply side challenges are coming down, again, how should we read this? Are there growth constraints, pricing constraints? And if you can also tell us about why you're opting for a market buyback for the second time? Because even the last time, many shareholders felt it was a negative move because it really doesn't benefit them. So why are you opting for a market buyback?

And one question for the HR head on moonlighting. Infosys sent out a message to its employees on how they should not two-time. But if you can give us your views on moonlighting.

[Salil Parekh, executive]

Thanks, Chandra. On the first question, I think 10,000 is a very strong net addition for us on top of the 20,000 that we had in the last quarter. Having said that, what we see with clients in the industries that I was referring to before, for example, mortgages in financial services, retail or parts of high tech or telecom, we see more caution in the way that the buyers, the clients are looking at services. We also see some impact on discretionary spend there. At the same time, our pipeline is extremely large. We have very strong large deals number for this quarter.

The way we are looking at it is we are making sure that we support our clients as they're looking for their growth transformation programs and now more and more for their cost efficiency, where we're deploying our automation services, those programs. And our pipeline has shown that there are more and more of those types of activities as well.

Our view is we are ready in this macro environment for all types of client work, whether it focuses on digital and growth, whether it focuses on cost. And yet, we want to be careful that we are cognizant of what's going on with the macro environment and make sure that we go into this watchfully. So that's how we are seeing this progression happen in this stage.

Sorry? I'll repeat the full answer. I'll repeat the whole thing. You take whatever meaning that has.

[Nilanjan Roy, executive]

So on the buyback, I think, firstly, we have a very predictable capital allocation policy, which we believe is really best in class. It is a 5-year policy from FY '20 to FY '24. We said we will return back 85% of our free cash flows, so it's a very predictable policy. It's got a dividend element on it, and it's got a buyback and an option also to do special dividends. And therefore, we also look at, over this period, how will our cash flows change and, therefore, how do we give back money in terms of both dividends and buybacks or through a special dividend. And therefore, we also want to see how much cash on the balance sheet. So it's not about finishing our cash in day 1, so we phase all this out.

And of course, one of the ways you can do it is through a tender offer, also an open market offer. And you've seen our past -- in fact, our last 2 were open market, not the last 1. Last 2, we've done open market offers. And the Board feels, looking at listings in the U.S., our regulatory concerns, EPS accretion, that it could be better to go for an open market offer. So they look at other considerations as well, and they decided to go with open market.

On the margin guidance, as I just mentioned, yes. We are 20.7%, right, at H1. And like we said, we are going to be at 21% to 22% at the bottom end of '21. So mathematically, we will have to be probably closer to 21.4% or something to even hit 21%. So we're looking at margin levers going ahead. Of course, as we've talked about, there will be some abatement from the attrition side. Of course, they'll be on the same side headwind because of furlough because it is a seasonally weak quarter, as you mentioned. So we will have some headwinds coming from furloughs, lower working days and which of some of these, we will try to offset through our cost optimizations, et cetera. And therefore, like we said, the 21% to 22% is a narrow band which we'll be comfortable with for this year.

[Salil Parekh, executive]

On that, let me address it. The way -- one of the things that our company is always focused on is making sure that we have real attention to learning opportunities and generally opportunities for all of our employees, and we've always encouraged our employees to have that sort of a mindset within the company. In fact, within the company, we've set up over the last several years -- so not now, not last week, over last several years, a platform which we call Accelerate, to which employees can look at what we call internally gig work, different projects outside of the main work. On an average quarter, over 4,000 people apply for this. About 600 are selected. So it's something that is active within the company.

Now for gig opportunities in the external environment, we support the aspirations of our employees to learn beyond their work. We will support them to work on certain gig projects after the prior approval of the managers. We are also developing more comprehensive policies for that while ensuring contractual and confidentiality commitments are fully respected.

However, to be clear, we do not support dual employment.

[Rishi Basu, executive]

Thank you, Chandra. Chandra, we have -- we'll come back to you, Chandra. We'll come back to you, Chandra, please.

[Salil Parekh, executive]

I don't have the information on the processes. If we have found in the past if the employees who are doing blatant work in 2 specific companies where there's confidentiality issues, we have let go of them.

In the -- in this -- in the last 12 months, but I don't have the data. I don't have the data, but we can certainly get it to you.

[Rishi Basu, executive]

Thanks, Chandra. Next question is from Shilpa Phadnis from The Times of India.

[Shilpa Phadnis]

Infosys believes in converting an adversity into an opportunity. What are the 2 or 3 things that you would do differently in a probability of uncertain events, especially when the clients' decision-making velocity has slowed down?

My second question is on barring BPM, very few subsidiaries are firing up. You and Mr. Roy did an internal review 2 months back on different subsidiaries. So are you taking a hard look at some of them? And are you folding some of them?

[Salil Parekh, executive]

Sorry, Shilpa, can you just repeat the first one, please?

[Shilpa Phadnis]

Infosys believes in converting an adversity into an opportunity. What are the 2 or 3 different things that you do differently when uncertain events are panning out, especially in terms of macroeconomic indicators and the client decision-making velocity slowing down?

And my third question is, Infosys long back started collapsing layers internally. Recently, we've seen some of the seniors are put on sabbatical, some of them are let go of due to account-related challenges. How do you plan to motivate this back, especially when we hear that variable payouts, JL7 and above, have still not been rolled out?

[Salil Parekh, executive]

Okay. I'll start with the first one. I think it is a question about how do we convert, in this environment, a different situation to what Infosys can do best. I think that's a very critical sort of point. What we are seeing in this environment is the capabilities that Infosys has. We have a very strong set of capabilities on digital and cloud, and we're seeing good traction and growth on those. We also have very good capabilities on automation, leveraging artificial intelligence and machine learning and efficiency. And we are seeing a very good traction on the cost programs where clients are looking at efficiency.

So what our approach is we want to make sure that both of those pillars and both of those engines are available to clients. And depending on what situation they are in and as the macro develop -- because the macro will change. They could be positive stimulants. There could be negative stimulants. So that are things we don't know. But we have both of these engines which are working well, and we believe that, that will support us as we look at it in a careful way as we go through the next period of time.

The second one was about subsidiaries. Do you want to take that one?

[Nilanjan Roy, executive]

Yes. I mean we review subsidiaries every quarter. It's not as if it's an annual exercise. In fact, 3 of our best subsidiaries -- Ben is here. Andrew is here, Radha here. So I mean that's -- I mean we continue to push them for performance. There's no question about it, the way we get pushed, so that's part of the game.

But I think we all are doing them very well. They have a lot of synergy benefits. Ben, across the entire DX world, WONGDOODY is now across Europe, in India. It's now in the U.S. and across the [ U.S. ], and it's a very large platform for us to take to our clients on the experience. So I think we have no concerns, really.

[Salil Parekh, executive]

And on the layer, I'm not aware of people on sabbaticals. We have, I think, people who are -- we have internal tracking, for example, connecting with our employees, and we track what we call our engagement scores. And we've seen a steady and good increase with our engagement scores across our company. We are seeing a real connect where people are seeing there's a new set of policies and initiatives that our HR team have rolled out for leadership development, for skilling, for making sure that there is much more awareness and support in the time during COVID, both from a medical perspective and also from a mental health perspective. So we are seeing a lot of traction.

I don't see any of those levers being something which is a concern. There's always something that's being watched at, and in fact, we are now seeing last 3 quarters' attrition coming down quite significantly each quarter. This -- in Q2, it was down by over another 2 points in the previous quarter. So we think some of the initiatives that were put in place are starting to have an impact, and we will continue to drive those initiatives ahead.

[Rishi Basu, executive]

Thank you. The next question is from Sai Ishwar from The Economic Times.

[Sai Ishwarbharath]

Sir, you had said that you're seeing caution in mortgages, financial services, retail, and that's catching on to high tech and telecom as well, right? So can you actually tell us like whether these are discretionary spends that are getting affected? Or do you see the total tech spends itself being held back by clients?

And also -- and one more question to Nilanjan, sir, is we are also hearing news about the onboarding delay of freshers, right? So -- but on the other hand, you've already reached 40,000 target in terms of fresher hiring. So how should we read into this? Because we are hearing reports seeing people who got offers in 2021 are not onboarded yet. So did Infosys probably overestimate demand?

[Salil Parekh, executive]

So on the first one, I think the -- what we're seeing in those specific industries that I mentioned, whether it's mortgages or high tech or the others, is an impact on the discretionary spend right now. What we're also seeing is, just stepping back from all of that, that many large companies are also looking at being more cost-efficient. So we see that given that we have a strength in digital, we have a strength in transformation, we have a strength in discretionary and we have a strength in automation and cost efficiency that we are able to support clients on both of those engines. But we do see those areas where we see some caution in more of the discretionaries.

[Nilanjan Roy, executive]

On the fresher side, I think, like I said, we've already done 40,000, and we started, we told you, at 50,000. So I don't think there's been any delay, particularly that we have continued to put in Mysore. A lot of people are going to Mysore, in fact, in physical. It's a good thing we've opened up the campus, and it's a big attraction for our talent to go through the physical training on Mysore and then go to the DCs.

So we are quite tracking as per plan. In fact, like I said, our 10,000 net add probably is the highest in the industry even -- I mean it will go up. We haven't given out a number as yet, but of course, the 50,000 will go up.

[Rishi Basu, executive]

Thank you. The next question is from The Hindu BusinessLine, Haripriya Sureban.

[Haripriya Sureban]

So what percentage of your workforce is back to the offices? What's your play there? Do you intend to call your employees back to offices?

And second question on attrition. You're sort of tried to have gotten it down. So what's helping you? How have you achieved it? And do you see more moderation going forward?

[Salil Parekh, executive]

On the return to work, I was looking -- we're looking at this every week. Last week, across India, we had about 45,000 employees in the office at any given time, not all the 5 days but at different times. And that's a huge number, given where we were -- everyone was in this industry a few months ago.

What we are finding is the approach we have taken so far, which is essentially we've been extremely supportive of our employees. We've been extremely supportive of a flexible approach, has been well received, and it's working. We're seeing that this is now gradually increasing. A couple of weeks ago, I was in the -- our Pune DC. In fact, Radha and I were both there. We could see a lot of engagement with employees as we connected with several of them.

My sense is, over time, we will make all the support necessary so employees can -- more and more employees can come back. There are, of course, several client situations which require specific action, so those will be followed as the clients are requiring it. But where we are able to provide some flexibility, we will continue to provide flexibility.

On the attrition, there were several initiatives that Krish and our HR team rolled out, maybe now, 12, 18 months ago. And I think we shared with some of those. There is one of them, for example, where there's a very well-defined part in terms of career in the first several years of an employee, and the steps are clearly defined and well understood. That's a big, big sort of positive for employees, but there are no surprises then anymore for them. There's a lot of emphasis on leadership development and skilling. There are programs with large global universities which the company runs, which give employees the ability to self-improve. And then we have our online platform, which allows employees to do it.

So there are several of those initiatives, and as a combination of that, it's worked. The trend last 3 quarters is good, and my sense is these initiatives will continue to give us benefit.

[Rishi Basu, executive]

Thank you. The next question is from Reuters News, Sethuraman.

[Sethuraman N R]

Sir, just wanted to know, was there any standout deal closure this quarter? I mean, like, would you be able to help me with your benchmark for the large deal? I just wanted to know like whether there were like multiple -- like the size, like, chunk of deals or like -- and also want to know about the smaller -- were there any smaller deals? Because you don't normally give out details on the smaller ones.

Also, last-minute buyback announcement and the open market buying was like -- it looks like a bit of a pressure from the market in terms of -- I mean, I just want to know, like, was there any pressure in terms of -- because normally, you consider buyback like when you come out with the earnings announcement. So this was the last moment, so there was -- and was there any delay, like, any consideration about that?

And so last one is like, is there any reorganization going in the company with Mr. Ravi Kumar's exit? Like, is -- will the backfill happen for the President's role? Are you looking at anything?

[Salil Parekh, executive]

I'll start with the first one. I think on large deals, we had 27 large deals. So for us, large deals are deals which are more than $50 million in value, and so it's a very significant size of a deal. We don't give out any specific deal information. To give you a sense, there are 27. That number can give you a sense given the overall value of the large deals.

On the buybacks, let me start, and Nilanjan might want to add. We had a very well-defined capital allocation policy. We've followed all of the reviews internally and externally on that. We feel no unusual activity, whatever sort of phrase you use. It was a well-informed decision by the Board, and we think it's going to be a huge positive because we have a capital return approach through this policy, and Nilanjan can add a little bit on that in a second.

On Ravi. First, Ravi is a good friend. I wish him all the best in his new endeavors. Infosys has incredible leadership talent in my mind, so over time, we will make sure that all of the activities are in the best interest of the clients, the employees and the company.

Anything you want add on capital?

[Nilanjan Roy, executive]

No. I think, like I said earlier, our capital allocation is very predictable. We said 85%. In fact, last year, we had given 73%. So I think if you have to catch up to 85%, buyback was the most natural way to do it. So I don't think there's any pressure or anything, and that's the beauty of our policy. It's so predictable.

[Rishi Basu, executive]

Thank you. The next question is from Binu Paul from Business Today.

[Binu Paul]

On the hiring of the freshers, so there's a large number of people that you've hired, you've planned. And I just wanted to ask what's the kind of impact when these freshers get on to newer projects will have on your cost optimization and margins?

[Salil Parekh, executive]

On the -- so hiring of college graduates, I think last year, we have done something in the range of 80,000 college graduates who joined us. One of the things that we are extremely good at and known for is our training program. And especially now that everyone is back in person, a Mysore training capability. In addition to what we have now, which is online, we've also set up training for some of the modules within our different DCs or delivery centers. So we find that these individuals coming out of that Infosys training are extremely ready to start to be productive, and they help us tremendously. Last year, we had 20% growth. Q1 was 22%; this quarter, 18%. So that needs a tremendous input that we see of new employees joining us.

[Rishi Basu, executive]

Thank you. The next few questions are on text.

We have a question from Shivani Shinde from the Business Standard. Attrition is still in the 20% range. By when do you see this coming down to sub-20%?

[Salil Parekh, executive]

On attrition, my sense is it's come down 3 quarters in a row for us. Each quarter, a sizable large step. All of the initiatives that have been put in place by the company, by the HR leadership are starting to yield some benefits. Over time, my sense is we will continue to see more benefits with attrition.

[Rishi Basu, executive]

Thank you. The next question is from The New Indian Express. Any plans to make work from office mandatory as your peers are calling employees back to office? Or any plans to continue the present work-from-home model? Also, are there any plans to increase local hiring in the American and European market?

[Salil Parekh, executive]

So on that, I think what we've seen is over the last several quarters, all of -- all through COVID, our work-from-home approach has been extremely effective for our clients and for our employees. We've now seen already a lot of our employees coming back. We've put in place, in the past, a very flexible approach where employees really had a tremendous amount of choice, and we see this traction week-on-week on its own, increasing of employees coming back. We want to make sure that we build things in the future which keep this element of flexibility and make sure that if there are some client-specific needs, we address them. But we want to make sure that it's something that our employees are comfortable with.

[Rishi Basu, executive]

Thank you. The next question is from The Financial Express. What is the revenue model for Infosys from 5G? Are you in talks with clients to leverage the opportunity?

There's also another question on moonlighting, which we've already answered.

[Salil Parekh, executive]

On 5G, it's really a step change in the world as it is in India. Infosys, we have developed huge sets of capabilities for 5G, client solutions, first for the telco industry and also use cases, which are for other industries which are leveraging 5G. For example, retail or financial services, logistics, warehousing, there's a host of these that we develop. We see a huge amount of traction in this business as we look forward, and so it's one of the growth drivers that we will continue to see in the future.

[Rishi Basu, executive]

Thank you. The next question is from CNBC Awaaz. Are you sensing any hesitation from clients on expanding budgets? What is the sentiment of clients in Europe? You mentioned some pressure in BFSI. Is it likely to worsen?

[Salil Parekh, executive]

On the client environment, we see the macro, all of us, the information that we read. But it sort of comes down to us in different formats. One, we have really 2 big drivers or engines on digital, which is growing in Q2 for us. And core services, which is also growing, both supported by very strong capabilities, whether it's Cobalt or automation. We also see that there are, in the macro environment, specific areas where we are more cautious. Mortgages and financial services or retail or high tech, some parts of high tech or telecom. But at the same time, our large deals pipeline is doing quite well, and we see a good traction in this quarter in large deals, which was at $2.7 billion. So all of those are sort of different aspects of what we see in the environment.

[Rishi Basu, executive]

The next question is from Deccan Herald. How is the overall pricing environment? Are you looking at passing some of the costs to clients where cross-currency movement has an adverse impact? Will the current pricing path sustain in the second half of FY '23?

[Nilanjan Roy, executive]

Yes. So I think inflation across the world really is quite a pandemic in a sense of the way we're seeing it across geographies. It's both across consumer prices, wage inflation. And of course, we are going back to many of our clients. One is as part of the clauses which we have like COLA. Sometimes, they are going back as part of our digital pricing and trying to demonstrate the value we'll be able to bring, for instance, in the cost takeout program and, part of that, how that can be taken back in terms of pricing or productivity with us. So these are multiple conversations across each client because each clients are unique. The FP contracts, T&M contracts, mid-cycle contracts, new contracts.

But the good news is that we have seen, firstly, a reduction in discounts that are very visible that the kind of earlier discounts we would have on renewals, et cetera, have definitely come down. On the other hand, we are trying to position ourselves on more increasing our prices on digital rate cards, at the same time, demonstrating the value this talent can give.

So the answer is yes, but this is a very long haul. It will take time. It's not something which we can achieve -- flip the book every quarter, but this is something which we are seeing some traction.

[Rishi Basu, executive]

Thank you. The next question is from the Informist. How do you see the Q3 performance given the macroeconomic situation? You've answered this, in case you want to add any more.

[Salil Parekh, executive]

Just a bit. I think on Q3, I go back to we don't give a quarterly guidance. We give annual guidance. And there, we've taken a growth guidance, which has gone from 14% to 16% to 15% to 16%, which is at the higher end of the growth guidance. Expect -- sorry? [indiscernible] We expect it to be in the 15% to 16%, yes.

[Rishi Basu, executive]

Thanks, Chandra. The last question for this evening is from the Mint. On the India market, given that there has been steady growth of enterprise spend for digital transformation in India, how does Infosys expect the domestic market to contribute to coming quarters?

[Salil Parekh, executive]

So on that, we have extremely bullish on where the Indian digital transformation agenda is. We've done projects which are really mission-critical. We can see, for example, on the GST program, there's a tremendous realization and increase in collection that the government is seeing through digital implementation of a completely new platform. We've seen this year similar things with the IT platform, so we are well positioned to do scale digital transformation programs. And we look forward to working with government organizations, private companies in that area as appropriate.

[Rishi Basu, executive]

Thank you. With that, we come to an end of this Q&A session. We thank our friends from media for being part of this press conference. Thank you, our leaders from Infosys, for being part of this press conference. Thank you, Salil. Thank you, Nilanjan.

Before we conclude, please note that the archived webcast of this press conference will be available on the Infosys website and on our YouTube channel later today. Thank you, and please join us for some high tea outside.