Infosys Ltd, one of India’s leading IT services companies, saw its stock fall by 4.9% despite announcing an upgrade to its revenue guidance for FY25. This decline occurred on October 17, 2024, after the company released its quarterly earnings report. The stock closed at ₹1,890.45, down from a previous high of ₹1,990.90 just two days prior.
Main Points
Earnings Report Highlights
Infosys reported a revenue growth of 3.1% in constant currency terms for the second quarter of FY25, slightly above analyst expectations. The company raised its revenue growth guidance for FY25 to 3.75% – 4.5%, up from the earlier forecast of 3% – 4%. However, this increase was overshadowed by concerns regarding overall market conditions and specific challenges faced by the company.
The market reaction to Infosys’s results was notably negative, with analysts attributing the stock’s decline to several key factors:
- Weak Demand Outlook: Analysts have expressed concerns about a weak demand environment, which has led to cautious spending by clients. Jefferies noted that the guidance reflects a subdued outlook for demand in the IT sector.
- Margin Pressures: While Infosys maintained its EBIT margin guidance of 20% – 22%, there are worries about margin contraction due to rising costs and investments in large deals. The EBIT margin for the quarter remained flat at 21.1%, which did not meet some analysts’ expectations.
- High Expectations vs. Reality: Prior to the earnings announcement, there were high expectations from various brokerage firms that Infosys would raise its full-year revenue growth guidance significantly higher than what was ultimately announced. This disconnect between expectations and actual results contributed to investor disappointment.
- Broader Market Trends: The IT sector as a whole has been under pressure recently, with many stocks experiencing declines due to economic uncertainties and fluctuating currency rates. This broader trend may have influenced investor sentiment towards Infosys as well.
- Profit Taking: After reaching record highs earlier in the week, some investors may have opted to take profits, leading to further selling pressure on the stock.
Despite the short-term decline in stock price, some analysts remain optimistic about Infosys’s long-term potential. For instance, Emkay Global has maintained a “Buy” rating on Infosys with a target price of ₹2,150, suggesting that any dips in stock price could present buying opportunities for long-term investors.
Furthermore, analysts like Kranthi Bathini from WealthMills Securities mentioned that while there are short-term headwinds, Infosys remains attractive for long-term holdings due to its robust business model and strategic initiatives aimed at enhancing operational efficiencies.
Looking ahead, investors will be closely monitoring how Infosys addresses its challenges in demand and margins. The management’s commentary on upcoming earnings calls will be crucial for setting investor expectations for the next quarters.
The company’s ability to navigate these challenges while capitalizing on emerging opportunities in technology spending will determine its performance in FY25 and beyond.
while Infosys’s guidance upgrade is a positive sign, the immediate market reaction reflects deeper concerns about demand and profitability within the IT sector.
