Infosys shares recover, but still in bear grip. What's next for mutual funds’ top March stock bet

Shares of Infosys recovered a bit in Tuesday's trade following a selloff in the previous session. Yet the stock is down over 24 per cent from its 52-week high levels, making investors wonder what is next for the IT stock after a weak set of March quarter results and FY24 guidance.  Infosys’ quarterly numbers took the market participants by surprise last week, including mutual funds, who bought Rs 2,576 crore worth Infosys shares in March, ahead of quarterly results.

In one goes by what Kotak Institutional Equities say, The IT major is expected to report a muted June quarter with growth recovery in the second half of FY24, led by mega deal revenue. It warned that a sharp revenue miss and the moderation in growth and margin outlook should impact the stock price in the near term.

That said, the brokerage still felt Infosys is among better-positioned companies in the current environment, given its strength in addressing both discretionary spending and cost take-out initiatives.  "We believe that the company will emerge as a net beneficiary of cost takeout and vendor consolidation exercises. We cut our target multiple to 20 times from 22 times to factor in the challenges and weak execution, leading to a revised Fair Value of Rs 1,470 from Rs 1,700 earlier," it said.

The scrip was trading almost flat at Rs 1,259.45 in Tuesday's trade. The stock is down 24 per cent from its 52-week high of Rs 1,672.45. Following its March quarter results, a host of brokerages have cut their price targets on the stock, which now stands anywhere between Rs 1,200 and Rs 1,675 now compared with up to Rs 1,800 levels earlier. JPMorgan has a target of Rs 1,200 for the stock; Credit Suisse sees the stock at Rs 1,240.  Nomura India finds the stock worth Rs 1,290.  Macquarie has a target of Rs 1,400 on the stock, Morgan Stanley Rs 1,475; CLSA, HSBC and Bernstein find the stock worth Rs 1,550 apiece. Investec sees the stock at Rs 1,605.

BNP Paribas said it sees a better risk-reward at TCS. "Given the heightened uncertainty at Infosys, we think  TCS is better positioned to benefit from the shift in customers’ focus to  cost-optimization deals and it is our sector top pick," it said while suggesting a target price of Rs 1,675 on the stock.

After continued financial outperformance among its peers for major portion of FY23, the surprisingly weak March quarter numbers from Infosys highlights the vulnerability from deteriorating macros despite robust deals wins and deal pipeline, said Sharekhan.

"FY24 guidance seems to be modest, lagging our expectations both in terms of revenues and margins. Further, the quarterly ask rate 1.7-2.8 per cent for FY24 CC revenue guidance of 4-7 per cent, appears steep given tough near term macro environment. Also peer TCS in its recent commentary hinted that growth is likely to be back ended due to near term uncertainty. Given the weak quarterly numbers and uncertain macro backdrop, we expect the stock to underperform," Sharekhan said.

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