Should mutual fund investors worry as Infosys shares fall 10% post Q4 results?

Mutual fund investors took a hit in Monday's trade as shares of Infosys cracked nearly 10 per cent after March quarter results. Data showed as many as 38 mutual funds owned stakes in the IT major as on March 31, 2023.

Shares of Infosys witnessed a selloff, as muted March quarter results and FY24 guidance led to a cut in analyst price targets, hurting investor sentiment.

The second largest Indian IT firm, in terms of sales, on April 13 reported a 7.8 per cent year-on-year (YoY) rise in consolidated net profit at Rs 6,128 crore for the March quarter compared with Rs 5,686 crore in the same quarter last year. Market watchers were expecting an average profit growth of 15 per cent. 

According to Nuvama Institutional Equities, SBI Mutual Fund held 16.31 crore shares of Infosys worth Rs 23,291 crore as of March 31. It was followed by ICICI Prudential Fund which owned 9.31 crore shares worth Rs 13,291 crore. HDFC Mutual Fund, UTI Mutual Fund, Aditya Birla Sun Life MF, Mirae Mutual Fund, Nippon India Mutual Fund, Kotak Mutual Fund, Axis Mutual Fund and Canara Robeco MF Mutual Fund also owned somewhere between 1.50 crore to 6 crore shares of the IT major on March 31.

Nuvama Institutional Equities retained a ‘Buy’ rating on Infosys with a revised 12-month target price of Rs 1,610 (earlier Rs 1,900). “Management talked about delayed decision-making and an uncertain environment compounded by the recent banking crisis. All in all, we are cutting FY24 and 25 EPS by 6 per cent and 7 per cent on lower growth and margins. This along with a valuation rollover to 22 times FY25 PE (from 27 times FY24 PE) yields a target price of Rs 1,610,” the brokerage said.

Sharekhan stated that after continued financial outperformance among its peers for the major portion of FY23, the surprisingly weak Q4FY23 numbers from Infosys highlight the vulnerability from deteriorating macros despite robust deals win and deal pipeline.

“FY24 guidance seems to be modest, lagging our expectations both in terms of revenues and margins. Further, the quarterly ask rate of 1.7-2.8 per cent for FY24 CC revenue guidance of 4-7 per cent, appears steep given the 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. We now expect muted 3.7 per cent and 5.4 per cent sales and PAT CAGR respectively over FY23-25. Hence, we downgrade the stock to hold with a revised price target of Rs 1,500,” Sharekhan said.

Tata Mutual Fund (MF), Franklin Templeton MF, DSP MF, Invesco MF, Bandhan MF, Sundaram MF, HSBC MF, Motilal Oswal MF, Edelweiss MF, LIC MF, Mahindra Manulife MF and Baroda BNP Paribas also owned between 25 lakh-1.80 crore shares of Infosys as of March 31, 2023.

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