Analysts Call Tracker: Infosys sees maximum downgrades since last quarter

Infosys

Infosys Ltd was hit by a wave of downgrades recently after posting weak March quarter earnings. According to Analyst Call Tracker, Infosys Ltd's number of "buy" recommendations on the stock from a quarter ago fell to 29 from 42 and the number of "hold" and "sell" ratings fell to 9 each from the previous four and two respectively.

Recently, the IT major fell short of its projected revenue growth for the year after disclosing its Q4 numbers. The company achieved a full-year growth rate of 15.4 percent, slightly below its guidance range of 16-16.5 percent. In Q4FY23, the reported revenue amounted to $4,554 million, experiencing a decline of 2.2 percent in absolute terms and 3.2 percent when adjusted for constant currency.

For fiscal year FY24, the IT giant has set a revenue growth target of 4-7 percent. This marks the first time since FY18 that the company's revenue is expected to fall within this guided range. The lower revenue guidance is attributed to reduced client spending and an uncertain demand environment triggered by meltdowns in US banks.

Following the negative outlook provided by Infosys for India's technology sector in the aftermath of the US and European bank turmoil, several brokerages, including JP Morgan, Macquarie, and Citi, have acted by downgrading the stock and reducing its target price.

Many analysts anticipate a further deterioration in the outlook for the Indian IT services sector throughout FY24. Nomura's India unit, for instance, stated that the current fiscal year is likely to be marked by disappointing revenue growth for many IT companies in the country. According to Nomura's report, "Increasing macroeconomic headwinds are expected to present challenges in terms of growth, as enterprises delay decision-making and prioritize cost optimization projects that yield immediate benefits, rather than transformation projects with delayed returns."

In its recent report Icra has predicted a further slowdown in revenue growth for Indian IT companies, projecting it to reach mid-single digits. The sector, which is valued at nearly $250 billion, is facing escalating challenges and uncertainties that will likely impact hiring, with companies expected to maintain low levels of employee additions in the near future. In fact, the net addition of employees has been negative in the last two quarters of FY23.

According to a report by industry lobby group Nasscom published in March, the growth of the sector already decelerated to 8.4 percent in FY23 from over 15 percent in the previous fiscal year. Despite Indian IT services companies having a strong order book and deal pipelines, Icra expects revenue growth to remain subdued in mid-single digits in USD terms for FY2024.

The prevailing uncertainties are expected to continue to influence the hiring landscape, leading to restrained employee additions. Nasscom's report highlights the challenges faced by the sector, and Icra's projections further underscore the subdued growth expectations for Indian IT companies in the coming fiscal year.