Infosys shares in focus as IT firm loses $1.5 billion AI contract

Shares of Infosys Ltd will be in focus on Tuesday morning after the IT major said a global company has elected to terminate the Memorandum of Understanding signed in September 2023 and that the parties would not be pursuing the Master Agreement.

Infosys had in a BSE filing on September 14 suggested that the IT firm had entered into a Memorandum of Understanding with a global company to provide enhanced digital experiences, along with modernisation and business operations services, leveraging Infosys platforms & AI solutions.

The total client target spend over 15 years was estimated at $1.5 billion, subject to parties entering into a Master Agreement.

"This is in continuation to the disclosure made by Infosys vide letter dated September 14, 2023 with respect to a Memorandum of Understanding with a global company which was subject to parties entering into a Master Agreement. The global company has now elected to terminate the Memorandum of Understanding and the parties will not be pursuing the Master Agreement," Infosys informed stock exchanges.

Infosys shares are up 2.4 per cent in 2023 so far against 16.25 per cent rise in the BSE Sensex. In a recent note, Kotak Institutional Equities noted that IT services firms faced a tough demand environment in FY2024 due to reluctance to commit to new programs given high economic uncertainty, reprioritisation of spending away from Covid-era priorities toward efficiencies and optimisation, excess in-house hiring and longer sales and ramp-up cycle in mega deals.

It further noted that enterprises across most sectors are focused on cost-reduction priorities, with many outlining cost-savings targets that stretch into 2024.

“The reprioritisation of spends toward focus areas of investment is not yet complete. Commentaries of select banks and financial services firms do not indicate a healthy increase in technology budgets yet. These do not inspire confidence of a significant recovery in discretionary spending at least in 1HCY24," it said.