 "Recent weakness in Infosys' stock a blip")
After hitting an all-time high of Rs 1,267.90 on April 18 following earnings upgrades by most brokerages in response to Infosys' March quarter performance and earnings projection for FY17, the company's stock has corrected to Rs 1,200 levels. In the past month, it is down about two per cent against a three per cent surge in the S&P BSE Sensex in this period. In comparison, shares of Tata Consultancy Services (TCS), Infosys' closest peer, registered a 0.7 per cent uptick in this period.
Among the key reasons behind this fall is the stock's strong run over the past year wherein it gained 22 per cent against a six per cent fall in the S&P BSE Sensex. Part of it could be also be attributed to profit-booking by investors such as Aberdeen Asset Management Asia, which brought down its stake marginally from 3.3 per cent to three per cent in April. Also, leading foreign brokerage CLSA in a report dated April 26 reduced Infosys' weightage in its portfolio from 13.5 per cent to 10.5 per cent, citing the best is behind the stock. CLSA, though, continues to have an outperform rating on the stock and believes it will give positive returns, albeit lower than earlier.
Does this mean Infosys' stock adequately captures all the positives? Not quite.
A strong revenue growth projection of 11.5-13.5 per cent for FY17 — higher than Nasscom's forecast of 10-12 per cent, healthy deal kitty and steady margin guidance of 30 per cent by 2020 are key the reasons why most analysts are positive on the Infosys stock. Their current average one-year target price of Rs 1,385 per share indicates a 14 per cent upside from the current levels. Even though some analysts believe Infosys’ 2020 margin aspiration is ambitious given the continued pricing pressure in the sector, the company’s management believes the benefits of automation will start kicking in gradually and help the firm achieve its desired margins.
Among the key reasons behind this fall is the stock's strong run over the past year wherein it gained 22 per cent against a six per cent fall in the S&P BSE Sensex. Part of it could be also be attributed to profit-booking by investors such as Aberdeen Asset Management Asia, which brought down its stake marginally from 3.3 per cent to three per cent in April. Also, leading foreign brokerage CLSA in a report dated April 26 reduced Infosys' weightage in its portfolio from 13.5 per cent to 10.5 per cent, citing the best is behind the stock. CLSA, though, continues to have an outperform rating on the stock and believes it will give positive returns, albeit lower than earlier.
Does this mean Infosys' stock adequately captures all the positives? Not quite.
A strong revenue growth projection of 11.5-13.5 per cent for FY17 — higher than Nasscom's forecast of 10-12 per cent, healthy deal kitty and steady margin guidance of 30 per cent by 2020 are key the reasons why most analysts are positive on the Infosys stock. Their current average one-year target price of Rs 1,385 per share indicates a 14 per cent upside from the current levels. Even though some analysts believe Infosys’ 2020 margin aspiration is ambitious given the continued pricing pressure in the sector, the company’s management believes the benefits of automation will start kicking in gradually and help the firm achieve its desired margins.
Higher total contract value of new deals, which is up 70 per cent year-on-year in FY16 to $757 million, reflects improving deal win-rate for the company. Analysts are also enthused by the digital initiatives of the firm. Among them, its key artificial intelligence platforms namely Infosys Information Platform and Infosys Automation Platform are progressing well. It recently launched another artificial intelligence platform called MANA and is making the necessary investments to grow these platforms. With increasing competitive intensity in these areas, continued growth and progress of these initiatives will be watched keenly going forward.