Infosys Drags IT Stocks Lower After 10% Tumble

Shares of information technology companies declined after Infosys Ltd. tumbled 10% on sharply cutting its full-year revenue guidance as clients cut spending.

The Nifty IT dropped 2.97% on Friday, led by the slide in Infosys. Persistent Systems Ltd., Wipro Ltd., HCL Tech Ltd. and Tech Mahindra Ltd. followed. Coforge Ltd. and Mphasis Ltd., however, rose.

Infosys shares opened 10% down, the biggest decline since April 17, and were trading about 7.39% down at 10:16 a.m. compared with a 0.9% decline in Nifty 50.

The Bengaluru-based IT company now expects to clock constant currency revenue growth of 1-3.5% in FY24, as compared with 4-7% estimated at the end of the January-March quarter.

Infosys Q1 Results: Key Highlights (Consolidated, QoQ)

• Revenue up 1.3% at Rs 37,933 crore, as against an estimate of Rs 37,843 crore.

• EBIT up 0.17% at Rs 7,891 crore, as compared with an estimate of Rs 8,983 crore.

• EBIT margin down 23 basis points at 20.80%. Analysts had estimated it at 20.9%.

• Net profit down 3.1% at Rs 5,945 crore versus an estimate of Rs 6,245 crore.

Total traded volume stood at 17.4 times its 30-day average. The relative strength index was at 46.

Of the 47 analysts tracking the company, 24 maintain a 'buy', 12 recommend a 'hold' and 11 maintain a 'sell' on the stock, according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 10%.

Here's what analyst have to say about the Q1 earnings

Jefferies:

• The research firm has a 'buy' rating.

• On the back of uncertain demand environment, Infosys has drastically reduced its FY24 growth guidance range from 4-7% to 1.0-3.5% which is the key negative from the result.

• Lowers profit estimate by 2%, but sees limited risks of further earnings cuts and expect 10% EPS CAGR over FY23-26.

Citigroup:

• Citigroup has a 'neutral' rating on the stock.

• The guidance revision is more than expectations and will impact the stock in the near term, given the rally over past one month; “We believe it highlights the challenges in the end- market currently”, Citigroup said.

JM Financial:

• JM Financial rated the stock as 'hold'.

• The company had erred on the side of optimism in its earlier 4%-7% guidance for revenue growth this fiscal year and therefore this guidance cut should be seen as a course correction rather than a sign of incremental deterioration in demand environment