The last major fall for Infosys was on April 17, 2023, when the stock fell by over 14% while the Nifty IT index fell 7.62%.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services attributed Infosys’ poor guidance as a drag for the stock. A 1-3.5% revenue growth guidance for FY24 will not just weigh on the stock but Nifty50 as well, as Infosys has a 5.9% weightage in the index.
“The writing has been on the wall for IT outsourcing companies for a long time. However, I think people have wanted to ignore it because they just want to buy IT stocks at all points in time for some reason. There is a time when you need to ignore a particular sector, focus on others and this is that time,” market expert Sandip Sabharwal told ETNow.
He said that even this guidance from Infosys was aggressive and he does not think the company will have “any growth” and could instead see a degrowth scenario, as project rampdowns were still on.
Infosys earnings had a rub-off effect on other IT stocks as well as all the 10 stocks in the Nifty IT index fell in the opening trade. The index fell by more than 4% around this time.
At 9:30 am, the stocks were trading with declines between 7.7%-0.70%. Coforge clawed its way back to the positive zone and was trading with gains of 0.54%.The other major losers were Persistent Systems (2.75%), HCL Technologies (2.42%) and Tata Consultancy Services (1.68%).
Sabharwal’s advice to investors is to do their own analysis as he believes managements generally tend to be quite bullish all the time. “Infosys at least gives guidance, so we get some clarity. Other companies just talk in esoteric terms which you need to decipher yourself and it becomes tough. So, I think the entire industry is going through a phase of transformation which will take some time,” he added.
On Infosys stock, Gaurav Bissa, Vice President, InCred Equities said that the stock has reversed from a descending trendline hurdle on the weekly charts. The stock is currently trading above the previous swing low of 1,250 and on long-term charts, the stock is trading comfortably above the 15-year ascending trendline breakout area, suggesting the structure remains strong for the long term.
“In the short-to-medium-term, the stock may oscillate between 1250-1500 range. Long-term investors can use this dip as a buying opportunity with a time horizon of 18-24 months for fresh lifetime high levels in Infosys,” he recommended.
Infosys posted a nearly 11% increase in first-quarter net profit, but missed estimates by most analysts and slashed its revenue growth outlook for the fiscal year, blaming spending cuts and delays in decision-making by clients, especially in the key financial services domain.
India’s second-largest software exporter projected its FY24 revenue to grow 1.0-3.5% in constant currency, or excluding exchange rate fluctuations, compared with the previous estimate of 4.0-7.0%, underlining the global macro challenges for the country’s storied sector which is seeing tepid demand for outsourcing services. The latest growth projection is the lowest in over a decade, and the cut was termed “drastic” and a “shocker” by Jefferies.
Notwithstanding today’s corrections, the Nifty IT index has given over 1.7% returns this week, gaining 514 points.
It has underperformed the Nifty50 and given returns of just over 7% in a 12-month period versus a near 20% rise seen in the broader index.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)