17 Apr The Infosys Crash: Is it Time to Panic?

“Whether More Fall to Come in Infosys?”

The Indian stock market has been experiencing bearish trends, all thanks to the Nifty IT Index which comprises ten technology stocks, including Infosys, one of India’s largest IT companies.

The sector is facing challenges due to macro challenges, especially in the banking, financial services, and insurance (BFSI) sector. Experts are expecting a sequential decline for some IT companies on a constant currency basis.

Infosys, in particular, has disappointed investors with its sales forecast for the current year. As a result, the company’s stock value fell to a 52-week low before recovering slightly. Analysts have given mixed recommendations on IT stocks, with some advising buying Infosys stocks at current levels, while others have cut the one-year price target.

Now the big question is, Should you buy or sell Infosys and other IT stocks?

In this article, we will discuss the reasons behind the bearish trends in the Indian stock market, the challenges facing the IT sector, and the recommendations given by analysts. We will also delve deeper into the reasons behind Infosys’ disappointing sales forecast and what it means for the company’s future, to find out the answer.

Also Read: Why This Fundamentally Strong EV Stock is on a Bullish Run in a Bear Market?

•The Downfall:

The Nifty IT Index, which comprises 10 technology stocks including Infosys, has witnessed a drop in their value due to bearish market trends, leading to investors losing ₹1.03 trillion.

The Infosys stock fell to a 52-week low of ₹1,185.30 before recovering to close 9.4% down at ₹1,258.2.

•The Reason:

-Infosys has recently announced its sales forecast for the current year, which disappointed investors.

-The disappointing numbers by Infosys and TCS have had an impact on the entire IT sector, with the Nifty IT Index witnessing a drop in their value.

•Key Highlights of the Results

-Net profit of Rs 6,128 crore in Q4 FY23,
– 7.7% YoY increase but below the expectations of Rs 6,550 crore.
– Rs 24,095 crore for FY23 up 9% YOY

– Revenue from operations increased 16% to Rs 37,441 crore,
– which is also below the poll of Rs 38,850 crore.
– Rs 146,767 crore (up 20.7%) for Fy 23
– Expects revenue growth of 4-7% for FY24.

-The Headcount growth – 29,219 employees,
-Down 46% from last year’s net addition of 54,396.
-The company’s headcount stands at 3,43,234 as of March 31, 2023.
-The attrition rate dropped to 20.9%

•Management Commentary

– CEO and MD Salil Parekh stated that Infosys sees strong interest from clients for efficiency, cost, and consolidation opportunities, resulting in a strong large deal pipeline.

– Parekh also stated that the weak US macro environment and global uncertainties are offering lucrative opportunities in the merger and acquisition space, and Infosys is looking at potential targets.

•Analyst Recommendations on Infosys and IT Stocks

Several analysts have given mixed recommendations on IT stocks, which could provide useful insights to investors.

Out of the 53 analysts surveyed by FactSet

-10 analysts who are bearish on Infosys, while
-29 are bullish and
-14 are neutral.

-Some experts advise buying Infosys stocks at current levels, with a one-year price target of ₹1,610, while others have cut the one-year price target by 13% to ₹1,520.

–Kotak Institutional Equities has given a ‘Buy’ recommendation on three IT stocks:

HCL Technologies,
Infosys, and
RateGain Travel Technologies.

The brokerage gives an ‘Add’ rating on

Mphasis,
TCS, and
Tech Mahindra,

while a “REDUCE” recommendation is given on
-LTI Mindtree and Wipro.
-Additionally, the brokerage gives a ‘Sell’ recommendation only on L&T Technology Services

JPMorgan downgraded Infosys to underweight

– cut its stock-price target on the India-based shares by 20%,
-stating that the company has “lost the revenue growth leadership”
-after its fourth-quarter results and guidance missed expectations.

Analyst Sandip Sabharwal believes that the

-bad news from management on large IT stocks has been priced in,
-so investors should consider buying on dips of around 15-20%.

-Sabharwal recommends playing these large IT stocks with a long-term view, as these companies have no debt, are cash-generating businesses, and have strong fundamentals. Sabharwal advises investors to be opportunistic and take advantage of dips in large IT stocks

•IT Sector Facing Challenges

Growth for IT services companies has been democratic in the last two years, but a challenging environment will force organizations to focus on costs, leading to various cost take-out opportunities.

Many analysts believe that the IT sector may continue to face challenges for another couple of quarters due to

-clients in the US and Europe deferred discretionary spending.

-macro challenges,

-especially around banking, financial services, and insurance (BFSI).

-Some experts are expecting a sequential decline for companies like HCLTech Ltd, Wipro Ltd, and Tech Mahindra Ltd on a constant currency basis.

•Strong Fundamentals but Growth is missing

• Return over 1year -28.0 %

• Market Cap ₹ 5,22,013 Cr.
• Stock P/E 21.7
• Industry PE 24.6
• Dividend Yield 2.70 %

• ROCE 40.8 %
• ROE 32.0 %
• OPM 23.9 %
• Debt ₹ 8,299 Cr.
• Debt to equity 0.11
• Qtr Profit Var 7.77 %
• Qtr Sales Var 16.0 %

•Advice for Investors

-Investors need to be careful when investing in the IT sector, especially during these challenging times.

-Analyst Sandip Sabharwal believes that the bad news from management on large IT stocks has been priced in, so investors should consider buying on dips of around 15-20%.

-Many analysts believe that the IT sector may continue to face challenges for another couple of quarters due to clients in the US and Europe deferring discretionary spending.

In summary,  investors could be opportunistic and take advantage of dips in large IT stocks, only if he is keeping a long-term perspective as the short to medium-term IT sector may continue to be volatile.

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