Infosys Stock Plummets 9% Following Downgraded FY24 Revenue Forecast: The Big Decision – Buy, Sell, or Hold?

Infosys Stock Plummets 9% Following Downgraded FY24 Revenue Forecast: The Big Decision – Buy, Sell, or Hold?

On several fronts, Infosys’ Q1 earnings fell short of market expectations. The price of Infosys shares increased by 3% in the previous month but decreased by around 12% from a year earlier.

After the Indian IT giant reduced its FY24 CC revenue growth target downward to 1-3.5% compared to 4-7% before, Infosy’s share price plunged 9% to Rs 1311.60 today. The company’s Q1 earnings fell short of market expectations in several ways. In comparison to last year’s quarter, Infosys’ net profit increased 10.9% year over year to Rs 5,945 crore for the June quarter. Most analysts predicted an increase of 14–18%. The price of Infosys shares increased by 3% in the previous month but decreased by around 12% from a year earlier.

Infosys, one of India’s leading IT firms, saw its shares tumble by 9% on July 20, 2023, a substantial one-day drop triggered by a revised FY24 revenue guidance. The IT behemoth downgraded its revenue projection for the fiscal year 2024, stirring concerns among investors and analysts grappling with buying, selling, or holding the INFY stock.

Infosys revised its FY24 revenue guidance to lower-than-expected figures, setting the stock market abuzz with discussions and speculations. Infosys had a challenging quarter, citing unforeseen complications in several projects, increased expenses, and the ongoing global economic uncertainties contributing to the decision to reduce its revenue forecast. This unexpected announcement raised significant concerns, impacting the stock’s performance and leading to a sharp 9% fall.

Investors reacted immediately to the news of the revised guidance. The Infosys stock price plunged 9% during trading on July 20, wiping off significant market capitalization. The sudden drop starkly contrasts the stock’s otherwise steady performance over the past few years, which had seen it deliver solid returns to investors.

Despite the reduced revenue guidance, Infosys maintains a strong presence in the global IT sector, boasting a large client base and a robust financial profile. Despite the downward revision, the IT major expects to grow at a decent rate compared to the broader IT industry.

However, the cut in guidance is a valid reason for concern. Investors are worried about unexpected project complications and increased expenses, which could hint at underlying operational issues. Market analysts carefully review the situation, gauging the likelihood of further downgrades or potential recovery.

The majority of the significant agreements in the pipeline are cost and efficiency initiatives for clients combined with consolidation prospects. A substantial investment in AI will yield positive medium-term visibility and improved profitability. We have reduced our EPS projections for FY24E and FY25E in light of the challenging market circumstances and management’s conservative medium-term outlook. We lower our target price of Rs 1,570 and value the company at a reduced multiple of 24x SEP2024E EPS, according to Choice Equity Broking analysts.

“Despite the short-term difficulties, we anticipate that the medium-term growth in IT spending will significantly benefit INFO. Based on our updated expectations, the stock is presently selling at 20.5x FY25E EPS. We value the company at 22.5 times FY25E EPS, which corresponds to a target price of Rs 1,600, according to Motilal Oswal analysts.

“Infosys’s repeated failure to meet advice is shocking, especially considering that it is accompanied by robust deal flow and comparable outcomes. Most of Infosys’ issues are company-specific rather than indicative of the industry. As a result, we anticipate Infosys will do worse than its competitors in the short- to medium-term.

Infosys has turned around on the weekly charts from a descending trendline obstacle. The stock, however, is now trading above the previous swing low of Rs. 1250. On long-term charts, the stock comfortably trades above the breakout zone for the 15-year ascending trendline, indicating that the structure is stable over the long run. The store may fluctuate between Rs. 1250 and Rs. 1500 in the short- to medium term. With a time horizon of 18 to 24 months, long-term investors may take advantage of this slump to purchase Infosys at new lifetime high levels, according to Gaurav Bissa, VP, InCred Equities.

Investment decisions should always be based on an individual’s financial goals, risk appetite, and investment horizon. However, here are a few factors to consider:

Those with a long-term investment horizon may consider this as an opportunity. Despite the immediate downturn, Infosys has demonstrated consistent growth and profitability over the years, and this could be a temporary setback. The company’s strong fundamentals, extensive client base, and significant presence in the global IT market might facilitate a rebound.

On the other hand, investors who prioritize short-term returns and are not ready to endure further downgrades might consider selling their holdings. The revised revenue guidance indicates possible operational issues and uncertainties, potentially impacting the stock performance in the short run.

Those who already hold the stock but are still determining the immediate future might consider holding onto their shares. While the downgrade is a reason for concern, Infosys still promises reasonable growth rates compared to the industry. A wait-and-watch strategy could be adopted to understand better the company’s subsequent quarters’ performance and future guidance revisions.

The decision to buy, sell, or hold Infosys shares in the aftermath of the revised FY24 revenue guidance is complex. It largely depends on individual investor perspectives, investment strategies, and tolerance levels to market uncertainties.

Despite its current challenges, Infosys remains a significant player in the global IT industry. While this is a bump in the road, the long-term outlook still could be positive, considering the company’s solid fundamentals and steady historical performance. As always, investors are encouraged to perform their due diligence and possibly consult with a financial advisor to make informed decisions.