Brokerages Stay Bullish on Infosys Despite Q3 Beat, Caution Looms Over Q4
Infosys Shares has garnered widespread optimism from brokerages following its stellar October-December quarter (Q3) performance, which defied the usual seasonal slowdown. The IT giant not only exceeded expectations in revenue, margin, and earnings but also raised its FY25 revenue growth guidance for the eighth time in nine quarters, setting a positive tone for India’s large-cap IT sector.
Brokerages Applaud Infosys’ Q3 Performance
Global research firm Bernstein hailed Infosys’ Q3 results as the “best earnings of the season,” highlighting strong discretionary recovery. The firm reiterated its ‘outperform’ rating with a price target of ₹2,330, citing a robust outlook for the IT services major.
Nomura also underscored Infosys Shares as its top pick in India’s large-cap IT space, praising its comprehensive performance and upgraded guidance. Nomura maintained a ‘buy’ call with a price target of ₹2,220, reinforcing confidence in the company’s future growth.
HSBC echoed similar optimism, emphasizing growth opportunities in Europe’s banking sector and the US retail market, both of which are key markets for Infosys Shares. HSBC reaffirmed its ‘buy’ stance and set a price target of ₹2,120.
Strong Deal Pipeline Boosts Confidence
Infosys Shares reported an impressive $2.5 billion in Total Contract Value (TCV) for large deals during Q3, with 63% of this coming from net new contracts. This slightly surpassed the $2.4 billion TCV achieved in the previous quarter, despite seasonal challenges. According to CEO Salil Parekh, the robust deal pipeline offers “greater confidence as we look ahead,” prompting management to revise its FY25 revenue growth guidance to 4.5-5% in constant currency terms, up from the previous 3.75-4.5%.
Morgan Stanley expressed optimism over Infosys’ deal wins and the management’s constructive outlook on discretionary spending. The brokerage highlighted that Infosys Shares free cash flow to net income was among the strongest in several years. It retained an ‘overweight’ rating on the stock, with a price target of ₹2,150.
Mixed Signals for Q4
Despite the upbeat Q3 results, some concerns linger over a potential slowdown in Q4. Jefferies pointed out that while FY25 guidance was raised, the unchanged ask rate for Q4 indicates possible seasonal headwinds. Bank of America (BoFA) Securities projected a 1% sequential revenue decline in Q4 due to reduced third-party revenue contributions, furlough impacts, and fewer working days.
During the post-earnings call, Infosys management acknowledged these challenges, noting that they have already been factored into the FY25 guidance.
ADRs Slump Despite Strong Results
On January 16, Infosys’ American Depository Receipts (ADRs), listed on the NYSE, dropped nearly 6%, reflecting investor caution over the company’s Q4 outlook. This decline may impact Infosys’ stock performance in India, with shares likely to open lower in today’s trade.
However, Morgan Stanley offered reassurance, noting that Infosys shares are expected to find support around the five-year average two-year forward free cash flow multiple, limiting downside risk.
Market Reaction and Closing Thoughts
Infosys released its Q3 results after Indian market hours on January 16, with shares on the NSE closing over 1% lower at ₹1,928.45. While Q4 headwinds remain a concern, the IT giant’s strong Q3 performance and improved deal wins have reinforced its position as a key player in India’s IT landscape.
As Infosys navigates the challenges ahead, its stellar track record and optimistic broker outlook position it as a resilient leader in the ever-evolving global tech space.
