Even as shares of Infosys Ltd tanked 8% after the company slashed its revenue estimates for the year, analysts cautioned against going overboard with the correction.
"We believe the management had erred on the side of optimism in its earlier 4-7% guidance,” said JM Financial in its commentary on the IT company’s results and outlook for the year.
“We, therefore, see this guidance cut as a course correction rather than a sign of incremental deterioration in the demand environment.”
The Infosys stock has been taken to the cleaners today and fell as much as 10.4% to Rs 1,311.60. The BSE Sensex tumbled 749.75 points to 66,822.15 in early trade as shares of other IT companies too fell in sympathy with Infosys.
The NSE Nifty fell by 203.15 points to 19,776.
What seems to have irked investors was the company’s decision to cut its FY24 growth revenue outlook to 1-3.5 per cent, citing delayed decision-making by clients amid global macroeconomic uncertainties. The company’s revenue growth guidance was the lowest since the great financial crisis of 2009.
The IT services company's previous estimates predicted a 4-7% revenue guidance in April, which was again a trimmed version of its earlier forecast of 16-16.2% growth this year. Last year, the company's revenue expanded by 15.4%.
"Overall,” said Analysts from Phillip Capital, “Infosys' guidance cut reflects a tough macro environment, leading to weakness in IT services spending in the near term."
The brokerage also downgraded Infosys' stock to "neutral" from "buy", with a target price of Rs 1,390, compared to today’s opening price of Rs 1,321.
Motilal Oswal also cut its estimates for the company for the year “to take into account the weaker demand commentary and project delays.”
OVER-REACTION?
At the same time, Motilal Oswal also pointed out that there could be some perception issues that may drive the stock down.
"While the guidance cut is concerning and should be negative for the share price in the short term, we view the miss as more of a perception issue rather than an operational one as the earlier guidance was too optimistic in the current environment," it noted.
It said it expects growth to average 7.7% in dollar terms over the three years starting from FY23 as it sees “continued strength in the deal pipeline with a few mega deals and an expected macro recovery over the next few quarters.”
Another analyst suggesting a HOLD status said that Infosy's Q1 performance surprised it but its guidance cut did not.
InCred Equities maintained that the company's constant currency for Q1 FY2024 was above estimates while the EBIT margin was modest at 20.8%