Business Standard

Street draws cheer from Infy forecast

Stock rises 10.9% but gains from now on could be limited

BS Reporter Mumbai
Shares of Infosys rose 10.9 per cent on Friday, marking their highest daily gain in six months, after the company surprised investors by retaining its full-year revenue guidance. But, upsides in the share could be capped in the near-term because it has gained 18 per cent in a month and business prospects still remain hazy, said fund managers and analysts.

"It is too premature to say that the worst is over for the company and the stock would see consistent upsides," said Sandip Sabharwal, head-portfolio management services of Mumbai-based broking firm Prabhudas Lilladher. "We need to see consistent performance for atleast 2-3 quarters".
 

Infosys shares, which closed at Rs 2,803 on Friday, had risen as much as 15 per cent earlier in the day. The rally in Infosys sparked upsides in shares of other software exporters. Tata Consultancy Services(TCS) gained almost 3 per cent and HCL Tech advances 2.5 percent. The BSE's Information Technology (IT) index jumped about 6.5 per cent.

Some analysts said they are in no hurry to alter their earnings estimates and ratings for Infosys based on the first quarter results.

"Considering the uncertain global economic environment, steady up-take in discretionary budget does not look sustainable. Therefore, we would like to wait for sustainable performance before changing our estimates and target price," said Daljeet S. Kohli, research head of broking firm India Nivesh, which has a hold rating and price target of Rs 2683 for Infosys.

A more-optimistic Nirmal Bang Securities upgraded its rating for Infosys shares to hold from sell and raise the price target to Rs 2860 from Rs 2400 after the results citing an increase in earnings per share estimates as the main reason.

"We expect Infosys to start showing more consistency in its results going forward," said Harit Shah, analyst of Nirmal Bang Securities. " While the management continues to be cautious regarding the business environment, we believe key positive signs have emerged over the past couple of quarters, notably a strong YoY increase in on-site volume and rise in employee utilisation rate," he said in a note.

Last quarter, Infosys' revenue growth forecasts for the year ending March 31, 2014 missed analysts' estimates, dragging down shares by 21 per cent on the results day. But, sentiment has improved since early June after Infosys brought back Narayana Murthy from retirement to revive the company's prospects. Since Murthy's return as the executive chairman, Infosys has seen many management changes but analysts are unwilling to conclude when it will start reflecting in the earnings.

"The results are pre-restructuring and the new management needs time to show results," said Sabharwal. "But, there could be an increase in costs because of this," he said.

Analysts said the negative impact of higher employee costs on margins could be softened by the depreciating rupee.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jul 13 2013 | 12:45 AM IST

Explore News