Infosys slumps most in three years on weak guidance

BLOOMBERG

Infosys Ltd nosedived 15%, the biggest intraday slump since October 2019, after the company’s guidance painted a negative outlook for India’s technology sector following turmoil at US and European banks.
The IT services firm was hit by a wave of downgrades after saying sales growth will be just 4% to 7% this financial year because of a reduction in client spending and an uncertain demand environment due to US bank failures. That compared with an average analyst estimate of 10.6%.
At least 10 brokers including JPMorgan Chase & Co, Macquarie Group Ltd and Citigroup have lowered their ratings on the stock and the American depositary receipts since the new guidance was released. Analysts are now the least bullish on Infosys since December 2019, according to data compiled by Bloomberg.
The outlook for India’s IT services sector is set to worsen even further over the next six months before bottoming out, according to Reliance Securities. “Uncertainty in the US and EU region, coupled with pricing pressure would lead to a challenging FY24,” analyst Mitul Shah in Mumbai wrote in a client note.
Infosys’s US-listed shares slumped 11% in New York trading after the results were announced. A sub-gauge of IT stocks in India slid 7.6% on Monday, the biggest intra-day decline in more than three years.
“Some industries such as financial services in mortgages, asset management, investment banking, telecom, high-tech and retail are more impacted, leading to uncertainty in spend and delays in decision-making,” Infosys Chief Executive Officer Salil Parekh told reporters after the earnings announcement.
Nomura’s India unit said the current financial year will likely be “a year of revenue growth disappointment” for many IT companies in the country.
“Increasing macroeconomic headwinds are likely to create challenges in terms of growth, as enterprises delay their decision-making and prioritise cost optimisation projects with upfront benefits, over transformation projects with back-ended returns,” analysts Abhishek Bhandari and Krish Beriwal wrote in a research note.
Weak earnings growth for software exporters may further hurt the outlook for India’s current-account deficit that is already under pressure from rising oil prices and softening exports. The IMF trimmed its growth outlook for India to 5.9% for the fiscal year started from April 1, from a previous forecast of 6.1% made in January.