Given the upward revision in full year constant currency revenue guidance and the clean chit given to the CEO and CFO in whistle-blower case, the share price of Infosys, on January 13, is unlikely to see a bumper rally.
According to experts who spoke to Moneycontrol, the stock may see around 2-3 percent upside or the maximum can reach up to the level that was seen just before whistle-blower complaint (Rs 767).
The rally would be on top of 2.8 percent gains seen in the last two trading sessions. After the whistle-blower complaint in October, the stock had fallen 16 percent in a single day but thereafter gradually recovered.
"Infosys has raised its constant currency revenue guidance for FY20 to 10-10.5 percent, up from 9-10 percent earlier, and the audit committee did not find any evidence of financial impropriety after investigation into whistle-blower complaint, which clearly indicated that the stock may see at least 2-3 percent potential upside on Monday," Manali Bhatia of Rudra Shares and Stock Brokers told Moneycontrol.
According to experts, the clean chit to CEO Salil Parekh and CFO Nilanjan Roy in whistle-blower case removed the overhang on the stock, but the sharp rally is likely only after the US SEC judgement which could be by February.
"We expect a 5-8 percent rally in the very near term. A larger trigger would await US SEC judgment on the whistle-blower complaints," said Niharika Ojha, IT sector Analyst at Narnolia Financial Advisors.
"The clean chit from auditors for the whistle-blower case is positive news, but again I don't think this was an issue at Infosys," said Moshe Katri, MD of Wedbush Securities, in an interview to CNBC-TV18.
He considered the company having raised its full year revenue guidance to be a positive move.
"It is a big deal, given the seasonally weak quarter for entire sector. The company is looking double digit growth, which for now is very good. It is a big surprise on digital front, which really is going to be a big driver for the company. Globally companies are investing aggressively in digital, so margins are going to retain. However, financial services and retail are structurally problematic areas," Katri said.
The Q3 FY20 result of Infosys was a testimony that the company strategy working in the right direction. Despite seasonality, Infosys reported a 9.5 percent YoY (1 percent QoQ) constant currency revenue growth in line with expectation while operating margin reflected a steady increase in QoQ (20 bps) expansion.
Digital revenue for the quarter (grew 40.8 percent YoY and 6.8 percent QoQ in constant currency) and large total contract value (TCV) wins ($1.8 billion) remained healthy showcasing the earlier investment in digital across five pillars are now bearing fruits for the company, Ojha said.
The total TCV worth for 9M FY20 has now reached $7.4 billion, a growth of almost 56 percent YoY and improvement in net new wins (32 percent of TCV won in Q3 came from net new) has resulted in management raising the revenue guidance while retaining the EBIT margin guidance of 21-23 percent for FY20.
"Inline Q3 and improved guidance will restart the narrowing of valuation differential that was happening in the first half of FY20 but had got reversed post whistle-blower complaint. Infosys-TCS valuation differential had narrowed to 15 percent but got widened back to 25 percent lately," Ojha said.
The software company registered a 10.9 percent sequential growth in the third quarter profit, which was ahead of analysts' expectations, driven by higher other income and lower tax expenses.
Most of the analysts expect that momentum will continue in Q4 FY20 as well given the strong deal wins. The management raised full year guidance for third time this year.
"We expect the optimism to continue in Q4 and expect the company to increase its top end of constant currency revenue guidance to 11 percent," Urmil Shah, VP & Research Analyst at IDBI Capital told CNBC-TV18.
Harit Shah, Senior Analyst-IT at IndiaNivesh, who expects 10.5 percent growth at the end of FY20 said the street would enthuse over the company's guidance. "Lower attrition is also positive and hence overall more positive than negative. The stock already recovered losses seen due to whistle-blower complaint."
Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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