ICICIdirect.com's report on Infosys Technical View
The share price of Infosys is seen resolving higher after bottoming out precisely near the important value area of Rs 1900 levels over the last few weeks. We believe the stock has formed an important higher bottom at the key support region and is set to embark upon its next up move.
After hitting a life-time high of Rs 2336 in February 2015, it entered a corrective phase to work off the excesses post the strong rally from May 2014 low of Rs 1440 to the life-time highs. The corrective decline got arrested precisely near the important value area of Rs 1900, which is the confluence of following technical observations:
The lower boundary of long term rising trend channel encompassing the entire up move since May 2013 is placed near Rs 1900
The 50% retracement of May 2014 to February 2015 rally (Rs 1440-2336) is placed at Rs 1880
The 52-week moving average, which is in a rising trajectory is currently placed at Rs 1965
The previous major peak of March 2014 (Rs 1924) has reversed its role and acted as support in December 2014 and now again in May 2015 highlighting the change of polarity principle, which states that a significant resistance once taken out, reverses its role and acts as support for future price action
After the decent correction over the last two months the stock has turned oversold upon approaching its major value area. The formation of two consecutive ‘Doji’ candlesticks on weekly time frame at the lower band of the long term rising channel suggests that the selling momentum has got absorbed at the key value area of Rs 1900 and pointed towards an impending reversal. The share price of Infosys, has resolved strongly above the previous two week Doji candles identical high of Rs 2000 in the current week to signal a reversal of the corrective phase and start of a fresh uptrend.
Fundamental View
Infosys expects to achieve revenue of $20 billion by FY20. This includes $1.5 billion contribution from acquisition and ~10% or $2 billion from new technologies such as design thinking, artificial intelligence and platform based offerings. This translates to 13.6% CAGR for existing business (FY15-20E). Infosys aims to achieve 30% margins by 2020 aided by employee productivity improvement ($80k vs. $52.3 in FY15). Employee productivity improvement could be driven by initiatives in 1) new technology and 2) automation in commoditised business. Infosys also expects to return to industry leading growth and margins by FY17E. Infosys guided for 10-12% growth in constant currency terms in FY16E while dollar revenues may grow 6.2-8.2%. Further, dollar guidance implies a CQGR of 2.8-3.5%. Finally, contrary to traditional seasonality Infosys expects growth acceleration in H2 vs. H1FY16E led by growth in newer technologies vs. traditional business.
We estimate Infosys will report revenue, EPS CAGR of 11%, 8%, respectively, over FY15-17E (with average 25.3% EBIT margins in FY16-17E), slower than 19%, 15% reported during FY10-15 along with average 27.4% margins. We believe, earnings trajectory could improve over time as incoming CEO continues to impress with strategic direction.
Strategy: "Buy Infosys in the range of Rs 2027.00-1995.00 for a target price of Rs 2330.00 with a stop loss below Rs 1860.00 on a closing basis", says ICICIdirect.com research report.
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