Infosys stock falls 4% after mixed Q2 showing: Should you buy, sell or hold?

Shares of Infosys in Friday trade fell more than 4 percent from the day’s low of Rs 1,889 per share after the company released its Q2 results with strong margins sequentially. Ahead of the results, the company’s shares ended nearly 3 percent higher at Rs 1,969.5 per share on the BSE.

Bengaluru-headquartered IT major Infosys released its September quarter results on Thursday. During the review period, the company’s revenue in constant currency (CC) grew by 3.3 percent YoY as well
3.1% QoQ. Zee Business Research estimates that revenue will grow by 3 percent.

Operating margin at the software services company has been stable sequentially (QoQ).

Net profit at the company for the September quarter grew to Rs 6,506 crore, up 2.2 percent sequentially and 4.7 percent year-on-year. Zee Business Research estimates consolidated PAT for the company to rise 5.5 percent sequentially to Rs 6,720 crore.

How do buyers and analysts view Infosys stock after Q2 results?

Morgan Stanley maintained its overweight rating on the stock with a price target of Rs 2,150 per share. The target means a rise of more than 9 percent. With a narrow 2Q earnings miss and weak deal wins, the brokerage sees little correction in the stock as possible in the near term. The brokerage advises stocks to build positions in any potential correction.

The brokerage sees support at a 5-year FCF multiple of 24 times i.e. at Rs 1,780 per share.

Citi, however, maintained its neutral call on the stock with a target of Rs 1,965. According to the brokerage, the company posted a decent Q2 with cc revenue growth of 3.1 percent sequentially.

Also, the higher end of the revenue guidance is raised which is better than peers.

The forward-looking indicators for the stock as stated by Citi are:

a) Gross TCV – down 7.4% TTM yoy
b) Head count -3% yoy
c) Guidance implies no growth in 3Q/4Q in the middle

Meanwhile, Anil Singhvi- Zee Business Managing Editor opined that Infosys posted almost in line results. Results are ok not great, he added, with growth led mainly by acquisitions. He added that the second half of the year is expected to be weak. Furthermore, for the future of Infosys, he advises investors not to buy and short the stock at high levels. According to Singhvi, the stock’s support levels are set at Rs 1,930 and Rs 1,905, and the stock will show bullish action above Rs 1,980 only.

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