Infosys, a major player in the Indian IT sector, has recently seen a wave of downgrades despite reporting positive financial results for the April-June quarter. The company's stock has received 'hold' or' sell' ratings from 18 of the 36 brokerages that cover it. The remaining 28 brokerages received a 'buy' rating. In the previous quarter, 33 of 48 brokerages had a 'Buy' rating on Infosys, while the rest 15 had a 'Hold' or 'Sell' call.
The imminent possibility of a worldwide recession, along with increased subcontracting costs and cross-currency headwinds, has put a pall over Infosys' operating margins, according to Axis Securities. The firm predicts a resurgence in demand as present concerns dissipate over the next two or three quarters.
Over the following two to three quarters, the brokerage anticipates a resurgence in demand as the present concerns fade, which might result in regular transaction wins for the business.
For the first quarter of FY25, Infosys recorded a revenue growth of Rs 39,315 crore, or 3.7 percent, year over year. Nonetheless, the quarter's net profit decreased by 20.1 percent on a QoQ basis to Rs 6,368 crore, mostly as a result of an increase in tax refunds in the preceding quarter. Notwithstanding these outcomes, Infosys is facing a number of difficulties that have caused analysts to become more circumspect.
Financial services is seeing early indications of a revival in discretionary spending, while other verticals are having difficulties. Inflation and rising interest rates are hurting the retail and energy and utility (E&U) sectors, while the industrial sector is still under strain. According to Prabhudas Lilladher, "The higher concentration of discretionary in its business mix is causing more volatility to its vertical portfolio...."
Because of the effects of the furlough in Q3 and Q4, Infosys anticipates a slowdown in the second half of FY25, but for now, it is bullish about the first half. In Q1 FY25, the business recorded its highest-ever free cash flow generation and closed a record 34 significant agreements. The management is worried about slow hiring and discretionary expenditure, which might hinder future development.
During a conference call, the business stated that it will keep evaluating if the encouraging trend from the June quarter will continue. After rising 11% and 19% in June and July, respectively, Infosys' stock has dropped more than 6% since the start of August. Infosys' stock was down 2% at Rs 1,756 as of 10.50 am.
