Infosys management denied the reports of over 4,000 employees [we estimate the number to be around 3,000] leaving in Feb – they did suggest that attrition is on the rise. Assuming attrition of another~4,000 in remaining two months and high attrition (~4000) in Feb – Infosys attrition (~28- 29%) would have been close to Patni’s peak attrition of ~30%. Infosys' highest attrition over last 7 years has been ~14% – clearly, the numbers look exaggerated
While it does indicate a good demand environment; this is already priced in, in our view. Even if a better demand environment results in better topline, it may not translate into EPS upsides – wage hikes would put pressure on margins while high attrition could impact execution as well.
While demand trends are positive, the sector remains vulnerable to (a) Higher than expected wage hikes (b) INR appreciation/adverse cross currency movements (c) Demand risk – “double dip”.
