On October 12, the Indian mutual fund industry faced a collective loss of 4,300 crore rupees as Infosys, the country’s second-largest tech services provider, witnessed a significant dip of 4.3 percent in its stock prices. The drop was prompted by Infosys revising its revenue forecasts, adding to concerns stemming from Tata Consultancy Services’ (TCS) cautious outlook and raising questions about ongoing reductions in software spending by corporate entities.
Infosys shares fell by 4.3 percent at the opening of the trading day, reaching a low of Rs 1,402.10 per share. By 9:30 am, the stock was trading at Rs 1,430 on the Bombay Stock Exchange (BSE), marking a 2.3 percent decrease from the previous day’s closing price.
As of the June 2023 quarter, approximately 460 mutual funds collectively held 688.12 million shares, representing an 18.63 percent stake in Infosys. The combined value of these holdings plummeted from over 1 lakh crore rupees on October 12 to about 96,480 lakh crore rupees on October 13. Notable mutual funds with stakes in Infosys include SBI Mutual Fund, UTI Mutual Fund, HDFC Mutual Fund, Aditya Birla Sun Life Trustee, ICICI Prudential Mutual Fund, among others.
Currently, Bloomberg reports that Infosys has received 21 buy recommendations, 15 hold recommendations, and 9 sell recommendations from analysts.
On October 12, Infosys Ltd, the second-largest tech services provider in India, downgraded its growth guidance for the fiscal year 2023-24 for the second time. The company now expects growth in the range of 1-2.5 percent in constant currency terms, excluding exchange rate fluctuations. Initially, Infosys had projected growth between 4-7 percent in April, which was later revised to 1-3.5 percent in July. Despite achieving 3.7 percent growth in revenue from April to September, with an incremental revenue of $336 million, the revised guidance for 2023-24 implies a revenue decline in the third and fourth quarters.
In response to this development, Motilal Oswal Securities expressed that Infosys’s repeated guidance moderation is unprecedented and negative for market sentiment. While they anticipate near-term pressure on the share price, they had already been forecasting subdued revenue growth for the fiscal year 2023-24 at 2.6 percent YoY in constant currency before the results were announced.
Infosys reported quarterly revenue of $4.72 billion, surpassing analyst expectations with a 2.2 percent sequential increase and a 3.6 percent year-on-year rise. As a result, the company’s net profit improved by 3.7 percent sequentially and 0.3 percent year-on-year, reaching $751 million. Analysts noted significant deal wins of $3.7 billion in the second quarter of fiscal year 2023-24, along with a 44 percent year-on-year increase in trailing 12-month deal wins. However, many of these deals have longer durations and are expected to ramp up toward the end of fiscal year 2024.
Kotak Institutional Equities voiced its disappointment over the guidance cut, emphasizing the impact of weak discretionary spending. Despite uncertainties in discretionary spending, Infosys has secured a substantial portion of large deals, providing some visibility for growth in fiscal year 2025. In response to the developments, Kotak Institutional Equities adjusted its revenue and earnings estimates for fiscal years 2024-26 downward by 1-2 percent and set a revised fair value (FV) for Infosys at Rs 1,700, maintaining an unchanged 22X multiple based on earnings expected in September 2025.
