Infosys shares fall 4% after, Q2 Results, Declares interim dividend of ₹18/share

Infosys, one of India's leading IT companies, opened on October 13 with its shares plunging by 4.5% after announcing a cut in its growth guidance for the second time in a row, despite a good performance in the September quarter. At 12:147 pm, Infosys shares were trading 2.8% lower at ₹1,424.80 on the National Stock Exchange (NSE). Company's American Depository Receipts (ADRs) listed on the New York Stock Exchange (NYSE) also saw a sharp decline, falling by 6.5% to $16.46 on October 12.

Why Did Infosys Revise Its Guidance?

Infosys has revised its full-year revenue growth guidance to a range of 1-2.5%, which was unexpected for the market. This is the second time in a row the company has reduced its growth forecast, previously downgrading it to 1-3.5%. Despite this disappointing guidance, Infosys reported a strong set of earnings for the July-September period, which has left investors puzzled. The company also achieved a record deal value of $7.7 billion in Q2, more than double the previous quarter. Factors such as a weaker rupee and delaying salary hikes contributed to a 40 basis point rise in Infosys' EBIT margin for Q2.

Infosys decided to postpone wage hikes in Q2 to improve profitability and will implement them from November 1. However, it's expected that Infosys shares will face selling pressure in the coming days.

Market Reaction and Analyst Opinions

According to experts, the reaction of the Indian stock market follows that of NYSE, especially after the announcement of quarterly results. Infosys ADR prices at NYSE saw selling pressure after the Q2 results for 2023 were released yesterday.

The reasons behind the share price fall are multifaceted. The Q2 earnings were below market expectations, and the downward revision of the revenue guidance has put pressure on Infosys share prices. Additionally, the global market sentiments are weak.

In contrast to its competitor, TCS, Infosys is not recruiting from campuses at the moment. Infosys CFO Nilanjan Roy mentioned that they had already hired 50,000 freshers last year and are focused on maintaining flexibility in their approach to return to work.

Nomura has cut its EPS estimates for FY24-26 by 1-2% and expects the EBIT margin to fall within the 20-22% range. They maintain a neutral stance on Infosys with a price target of ₹1,400.

Citi sees volume challenges and an uncertain near-term outlook in Infosys' management commentary. They maintain a neutral stance with a price target of ₹1,565.

Jefferies continues to be bullish on Infosys with a buy rating and a price target of  ₹1,650, citing impressive new order book and deal wins despite the guidance cut for the current fiscal year.

Out of 45 analysts tracking Infosys, 21 recommend a "buy," 15 suggest "hold," and nine advise "sell."

Dividend Declaration and Deal Wins

Alongside its Q2 results, Infosys declared an interim dividend of ₹18 per equity share for FY24, the record date for the dividend is October 25, 2023, and the payout date is set for November 6, 2023. Infosys has won deals worth $7.7 billion in the September quarter, which is seen as a positive sign for the company's future growth.

In summary, Infosys is facing challenges with its growth guidance, which has had a negative impact on its stock price, despite strong earnings and substantial deal wins in Q2 2023. The company's approach to campus hiring and return to work differs from that of its competitor TCS, as it focuses on maintaining flexibility in its workforce strategy. The market's reaction to Infosys' performance will continue to be closely watched in the coming days.