IT giant Infosys delivered positive Q2 earnings, but the highlight was the company's guidance lift, for the second quarter in a row. Buoyed by this, brokerages also remain optimistic about the upward revision, which hints at early signs of a recovery in discretionary spending.
Infosys raised its FY25 revenue guidance to 3.75-4.5 percent in constant currency terms, an increase from the previous quarter’s range of 3-4 percent. Infosys' revenue guidance lift was driven by improved and broad-based Q2 performance, increased volumes, and growth in its small-deal pipeline. The company's operating margin guidance for FY25 remained steady at 20-22 percent.
Nuvama Institutional Equities forecasts Infosys to benefit disproportionately in FY26-27 from a rebound in discretionary spending, much like it was disproportionately impacted in FY24-25 compared to peers. On that account, Nuvama sees Infosys as one of the best plays for capturing the IT sector's revival in the coming years.
Nomura also shares the view and believes Infosys to be one of the best ways to play a potential improvement in discretionary demand in IT services, reiterating the stock as its top pick within the sector. Nomura has a 'buy' call on the stock with a price target of Rs 2,130.
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Despite the guidance upgrade, Infosys posted a slight miss in its Q2 earnings. The company's consolidated net profit stood at Rs 6,506 crore for Q2FY25, a 2.2 percent sequential increase but below Moneycontrol's estimate of Rs 6,769 crore. Revenue from operations rose 4.2 percent on quarter to Rs 40,986 crore, narrowly missing the forecast of Rs 40,857 crore.
On the back this slight miss in Q2, Morgan Stanley sees the possibility of a bit of stock correction in the near-term. However, the brokerage also feels that investors should build fresh positions in such a potential correction. Retaining a bullish stance on Infosys, Morgan Stanley has an 'overweight' call on the stock with a target price of Rs 2,150.
On the technical level, Morgan Stanley sees a strong support coming in for the stock at its five-year average free-cash-flow multiple--which sits at Rs 1,780.
Meanwhile, the IT major's deal wins stood at $2.4 billion in Q2 lowest in the last five quarters, which Emkay Institutional Equities attributes primarily to the lumpy nature of the deals. However, the brokerage highlighted that deal pipeline for Infosys still remains strong with small-deal pipeline seeing double-digit sequential growth. Emkay also holds a 'buy' call on Infosys with a target price of Rs 2,150.
Nomura also believes expanding pipeline of small deals augurs well for Infosys' discretionary demand.
Also Read | Infosys ADR falls nearly 4% on NYSE following Q2 results
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