The fact that Infosys is approaching Cognizant’s level of growth reflects the latter’s difficulties, as it faced execution challenges and underperformed in comparison to its peers, despite the pandemic causing significantly increased demand.

Cognizant surpassed Infosys to become the second-largest IT services company in terms of revenue in 2012, marking a watershed moment for the Nasdaq-listed firm founded more than a decade after Infosys.

Now, a decade later, Infosys is poised to reclaim its lead over Cognizant, as the latter’s recent underperformance has allowed Infosys to close the gap.

In a note, Kotak Institutional Equities stated that there is little read-through for other Indian IT services companies from these results, a shift from when Cognizant was regarded as a barometer for the sector.

The fact that Infosys is approaching Cognizant’s level of growth reflects the latter’s difficulties, as it faced execution challenges and underperformed its peers despite the pandemic.

Cognizant chief financial officer (CFO) Jan Siegmund stated last quarter that the company was absent from large and mega deals, which slowed revenue growth.

According to Kotak Institutional Equities, Infosys is catching up to Cognizant in terms of size, with only a 6% revenue difference. Infosys’ revenue has steadily increased over the last eight quarters.

“CTSH has enjoyed a comfortable lead over Infosys in revenues. That lead is narrowing, with the gap in revenues between the two companies down to just 6.6%. Infosys’ quarterly revenue run-rate of US$4.555 bn is just US$300 mn away from CTSH’s revenues,” the note by analysts of Kotak Institutional Equities said.

“We would not be surprised if Infosys reclaims revenue leadership over CTSH in the coming quarters,” it added.

As of November 2, Infosys’ market capitalisation was $78.98 billion, while Cognizant’s was $31.20 billion.

Cognizant had over 40,000 more employees than Infosys eight quarters ago — the quarter ending December 2020 — in terms of headcount addition.

The war for talent resulted in a significant increase in hiring across the industry as demand far outstripped supply. However, with Cognizant experiencing attrition levels of over 30%, including a significant percentage of involuntary attrition, Infosys is now just short of 3,800 employees when headcounts for the quarter ending September 2022 are compared.

Cognizant reduced its revenue growth guidance for the second quarter in a row, to 7 percent from 8.5-9.5 percent previously. It had predicted 8.5-11.5 percent growth at the start of the year.

“We are revising our full-year guidance downward to reflect currency headwinds, lower North America billable headcount, which we expect to improve over several quarters, and softer-than-expected bookings growth,” said Chief Executive Officer (CEO) Brian Humphries during the company’s conference call with analysts.

In contrast, Infosys increased its year-end revenue guidance from 14-16 percent to 15-16 percent.

In contrast to Humphries, Infosys CEO Salil Parekh was upbeat: “Our H1 performance of 20.1% growth in constant currency and solid large deal signings was impressive.”

Cognizant’s operating margins have been improving, but despite a decline, Infosys’ remains healthier.

According to Kotak analysts, financial services is a critical vertical for all companies, and Cognizant has been losing market share in large banking accounts. “Growth in key verticals—financial services and healthcare—has slowed to low-to-mid single digits,” according to the report. Cognizant’s revenue from financial services fell by 1.4 percent sequentially.

Infosys’ Parekh identified some softness in mortgages as part of the financial services vertical. “Growth in the Financial Services segment remains strong, supported by large deal wins, account expansion, and new account opening,” he said.