Infosys shares slip 30% since January 2022 after Friday’s fall. Should you buy the dip?

Shares of Infosys fell over 8 per cent on Friday, taking the fall to nearly 30 per cent since January 2022. The IT major came under pressure on July 21 after the company on Thursday sharply cut its revenue growth guidance for FY24. On the other hand, the benchmark BSE Sensex dipped 1.31 per cent, or 887.64 points, to 66,684.26.

While announcing its June quarter results on July 20, Infosys slashed its FY24 revenue growth estimate to 1–3.5 per cent in constant currency terms from 4–7 per cent earlier.

Talking about Infosys, Sumit Pokharna, Research Analyst & Vice President at Kotak Securities, said, “The guidance cut was sharp. The magnitude of the cut was all the more surprising noting mega-deal announcements and a strong pipeline. The guidance cut is either on account of the sharp deterioration in discretionary spending or compensating for a tad aggressive guidance earlier or both.”

He added that the management attributed it to a cut in discretionary spending and delays in large deal closures and ramp-ups. “We believe that the weaker outlook is not Infosys-specific and captures a broader slowdown, especially in key verticals, i.e. banking and telecom,” Pokharna said.

Overall, the second largest IT firm by sales, on Thursday said its net profit (after minority interest) increased 10.9 per cent year-on-year (YoY) to Rs 5,945 crore in Q1FY24 against Rs 5,360 crore in the same quarter last year. On average, analysts were largely expecting a 14-18 per cent growth in the bottom line for the quarter.

Net sales for the Bengaluru-headquartered firm increased 10 per cent YoY to Rs 37,933 crore from Rs 34,470 crore in the corresponding quarter last year. Revenue growth came in line with Street expectations.

Shares of the company have cracked nearly 30 per cent since January 2022. On the other hand, the benchmark BSE Sensex has gained around 15 per cent during the same period.

Should you buy Infosys now? Brokerage Religare Broking maintained a ‘Buy’ rating on Infosys post-Q1 results. However, it slashed the target price to Rs 1,738 (Rs 1,855 earlier). Shares of the company closed at Rs 1,330.40 on July 21.

“The challenges on the macro front, delay in spending and decision by clients would continue to impact growth for Infosys in the near term. Incorporating the management revised guidance our estimates are cut by 4-5 per cent for FY24E and FY25E and our revenue /EBIT in rupee term is expected to now grow by 7.2 per cent/10.6 per cent CAGR over the next 2 years. Thus, our target price is revised downwards to Rs 1,738 from earlier Rs 1,855 but we maintain a Buy rating,” Religare Broking said in a report.

BNP Paribas also retained ‘Buy’ on Infosys with a target price of Rs 1,600. “We see any widespread weakness in the IT Services companies’ stock prices post this result as an opportunity for investors to start building positions in the sector. Our sector top pick TCS is better placed in this dynamic demand environment,” BNP Paribas said.