WHY INFOSYS?

 INFOSYS LIMITED being the top IT company of not only India but also is considered as
one of the most targeted IT companies in the world. With expanding global business all
around the world with major clients in USA, EUROPE, AUSTRALIA, UNITED
KINGDOM, Infosys has a huge exposure towards the risk not only with respect to financial
transactions but also related to clients default, government policies of its client countries.
 Infosys has a total exposure of ₹60000cr+ which includes market risk, credit risk, and client
risk.
 Having such an enormous account of exposure, it becomes very necessary to understand how
the company manages the total risk and the products used by the company to hedge their
risks.
 Infosys won the “Golden Peacock award for risk management” in 2018 which adds to
reasons for choosing this company and understand the risk management process.
RISK MANAGEMENT COMMITTEE

The purpose of the risk management committee is to assist the Board in fulfilling its responsibilities with regard
to the identification, evaluation and mitigation of operational, strategic and environmental risks.
Members of the committee:
It comprises four independent directors as on March 31, 2019 :
 D.N. Prahlad, Chairperson
 D. Sundaram
 Kiran Mazumdar-Shaw
 Michael Gibbs
RISK MANAGEMENT HIGHLIGHTS- FY 2019
As part of monitoring key risks, the risk management office assessed:
 Competition and competitive position in key market segments
 Progress of the execution of strategic programs
 Business environment- client concentration, client technology spend, growth of top clients, etc.
 Risks associated with customer contract management process
 Information security risks - cyber attacks and threat intelligence
 Key operational risks - client service delivery, retention and engagement of employees, reskilling of
employees, etc.
 Key developments in the regulatory environment - Brexit, Changes to immigration laws, Minimum
wages, and impact to the businesses of our clients
TOP RISK FACTORS
 Spending on technology products and services by Infosys clients and prospective clients is subject
to fluctuations depending on many factors, including both the economic and regulatory
environment in the markets in which they operate.
 Economic slowdown or other factors may affect the economic health of the US, UK, EU,
Australia or those industries where Infosys revenues are concentrated.
 Intense competition in the market for technology services could affect Infosys win rates and
pricing, which could reduce Infosys market share and decrease Infosys revenues and / or Infosys
profits.
 We may be unable to recoup investment costs incurred in developing Infosys software products
and platforms.
 We may engage in acquisitions, strategic investments, strategic partnerships or alliances or other
ventures that may or may not be successful.
TOP RISK FACTORS
 We are investing substantial cash assets in new facilities and physical infrastructure, and
Infosys profitability could be reduced if Infosys business does not grow proportionately.
 Currency fluctuations and declining interest rates may affect the results of Infosys operations.
 Infosys work with governmental agencies may expose us to additional risks.
 Infosys reputation could be at risk and we may incur financial liabilities if there are any
privacy breach incidents under General Data Protection Regulation (GDPR)
 Infosys net income would decrease if the Government of India reduces or withdraws tax
benefits and other incentives it provides to us or when Infosys tax holidays expire, reduce
or terminate.
 The price of Infosys ADSs and the US dollar value of any dividends we declare may be
negatively affected by fluctuations in the US dollar to Indian rupee exchange rate.
 Sales of Infosys equity shares may adversely affect the prices of Infosys equity shares and
ADSs.
FINANCIAL RISK MANAGEMENT

Market
Risk

The company’s activities expose it to the following risks-

Factors

Liquidity Credit
Risk Risk
WHAT IS MARKET RISK ?
Major Market Risks are usually the most obvious type of financial risk that an organization faces.

Major Market Risks include:

• Foreign Exchange Risk
• Interest Rate Risk
• Commodity Price Risk
• Equity Price Risk
MARKET RISK EXPOSURE
• Primary Market Risk – Foreign Exchange Risk
• International Operations
• Transactions in several currencies – US Dollars, Euro, Pound, Australian Dollar, Others
(Amount in ₹ Crore)

USD Euro GBP AUD Other Total

Particulars currencies

Cash and cash equivalents 1,640 266 110 213 1,113 3,342
Trade receivables 9,950 1,844 1,025 527 971 14,317

Other financial assets , loans and other 4,189 873 285 310 748 6,405
current assets
Trade payables (708) (128) (139) (80) (107) (1,162)
Other financial liabilities (4,201) (560) (217) (382) (759) (6,119)

Net assets / (liabilities) 10,870 2,295 1,064 588 1,966 16,783

MARKET RISK HEDGE
• The primary market risk to the Company is foreign exchange risk. The Company uses derivative financial
instruments to mitigate foreign exchange related risk exposures

• The Company holds derivative financial instruments such as foreign exchange forward and options
contracts to mitigate the risk of changes in exchange rates on foreign currency exposures.

• The exchange rate between the Indian rupee and foreign currencies has changed substantially in recent years
and may fluctuate substantially in the future. Consequently, the results of the Company’s operations are
adversely affected as the rupee appreciates / depreciates against these currencies.

• Sensitivity analysis is computed based on the changes in the income and expenses in foreign currency upon
conversion into functional currency, due to exchange rate fluctuations between the previous reporting period
and the current reporting period.
CASH FLOW HEDGE
• The Group designates certain foreign exchange forward and options contracts as cash flow hedges to
mitigate the risk of foreign exchange exposure on highly probable forecast cash transactions.

• When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in
the fair value of the derivative is recognized in other comprehensive income and accumulated in the
cash flow hedging reserve.

• If the hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the
hedging instrument recognized in cash flow hedging reserve till the period the hedge was effective
remains in cash flow hedging reserve until the forecasted transaction occurs

• If the forecasted transaction is no longer expected to occur, then the amount accumulated in cash flow
hedging reserve is reclassified to net profit in the Consolidated Statement of Profit and Loss.
• The foreign exchange forward and options contracts mature within 12 months. The table below
analyzes the derivative financial instruments into relevant maturity groupings based on the
remaining period as at the Balance Sheet date :

• The Company has designated certain foreign exchange forward and options contracts as cash flow
hedges to mitigate the risk of foreign exchange exposure on highly probable forecast cash
transactions.
WHAT IS CREDIT RISK?
• Credit risk refers to the risk of default on its obligation by the counterparty resulting in a financial
loss.

• Organizations are exposed to credit risk through all business and financial transactions that depend
on the payment or fulfillment of obligations of others.

• The deterioration of credit quality - source of credit risk.

CREDIT RISK EXPOSURE
The maximum exposure to credit risk at the reporting date is primarily from

a. Trade Receivables - ₹14,827 Crores

b. Unbilled Revenues - ₹5,374 Crores

• Trade receivables and unbilled revenues are typically unsecured and are derived from revenue
earned from customers primarily located in the US.

• Credit risk on cash and cash equivalents is limited as the company generally invests in deposits
with banks and financial institutions with high credit ratings assigned by international and
domestic credit rating agencies.

• Investments include investment in liquid mutual fund units, fixed maturity plan securities,
certificates of deposit, commercial paper, quoted bonds issued by government and quasi-
government organizations and non-convertible debentures.
CREDIT RISK HEDGE
• Credit risk has always been managed by the Company through
• credit approvals,
• establishing credit limits and
• continuously monitoring the creditworthiness of customers to which the Company grants credit
terms in the normal course of business.

• As per Ind AS 109, the Company uses expected credit loss model to assess the impairment
loss or gain.
• Products:
• credit default swap quotes,
• credit ratings from international credit rating agencies and
• the Company’s historical experience for customers.
What is Liquidity Risk?
Liquidity is the ability of a firm to meet its short term obligations.

It affects the ability to purchase or sell a security or obligation, either for hedging purposes or trading
purposes or alternatively to close out an existing position.

Liquidity risk includes an organization’s insufficient liquidity to maintain its day-to-day operations.

Indicators of liquidity include:

• Financials active in the market

• Average bid/ask spreads

• Trading volumes

• Price volatility
Liquidity Risk Exposure
The Group’s principal sources of liquidity are cash and cash equivalents and the cash flow that is
generated from operations.

The Group has no outstanding borrowings.

The Group believes that the working capital is sufficient to meet its current requirements.

Working capital- ₹ 34,240 crores (as on 31st March, 2019)

Outstanding compensated absences - ₹1,663 cores (As on 31st March 2019), which have been
substantially funded.

Thus, No Liquidity Risk is perceived by the Company.