Infosys Share Price Declines on Growth Concerns
Shares of Infosys Ltd., India’s second-largest IT services provider, fell nearly 5% to ₹1,580.10 per share on the NSE on March 12, 2025, following concerns raised by global investment bank Morgan Stanley over the company’s growth outlook and valuation multiples.
- Stock Performance:
- Infy shares declined by 4.9% at their lowest point during the day.
- The stock has delivered a negative return of 11.3% year-to-date, as per InvestingPro data.
The sharp decline comes after Morgan Stanley highlighted downside risks for both Infosys’ revenue growth and overall valuation multiples, raising concerns among investors.
Morgan Stanley’s Assessment of Infy and IT Sector
In an investor note, Gaurav Rateria, an analyst at Morgan Stanley, pointed out emerging risks for Infy and the broader Indian IT services sector.
Key Concerns Raised by Morgan Stanley:
- Weak Revenue Growth Outlook:
- The Indian IT industry is facing slower revenue growth due to lower discretionary spending by global clients.
- Infosys’ deal wins in FY25 are expected to be weaker compared to the previous year, which may impact its revenue trajectory.
- Stretched Valuations:
- Infy’s current P/E ratio stands at 23.9x, raising concerns about its valuation premium amid slowing growth.
- Absence of a Broad-Based Recovery:
- The IT sector is yet to witness a widespread recovery, as clients continue to curtail tech budgets due to uncertain global economic conditions.
Following this report, investor sentiment turned negative, leading to a sell-off in Infy shares.
Weaker Deal Wins in FY25 Could Impact Infosys’ Growth
According to market analysts, Infosys’ deal pipeline for FY25 appears weaker than in previous years.
- Revenue Growth Slows:
- Recent data from InvestingPro suggests that Infosys’ revenue growth stood at just 3.02% over the last 12 months.
- While six analysts have revised their earnings estimates upwards, concerns persist over whether Infy can sustain its growth momentum.
- IT Spending Trends:
- Analysts caution that global clients are cutting back on discretionary IT spending, affecting Infosys’ revenue streams.
- The US, a key market for Infy, is witnessing slow tech spending, impacting new project acquisitions.
Macroeconomic Factors Impacting Indian IT Stocks
The Indian IT sector, including Infy, has been under pressure due to macroeconomic uncertainties and global trade risks.
1. US Economic Slowdown & Trade Uncertainty
- The US economy, a major revenue source for Infy, faces slow growth projections in 2025.
- US trade policies and protectionist measures could also hinder Indian IT exports, affecting companies like Infy.
2. Impact of a Weak Rupee
- A weak rupee generally benefits Indian IT companies, as they earn a significant portion of their revenues in US dollars.
- However, despite currency advantages, Infy shares remain under pressure due to weak global demand.
Crisil and Fitch Ratings on the Future of Indian IT Industry
Crisil’s IT Industry Growth Forecast
A report by Crisil Ratings suggests that the Indian IT sector will grow at a rate of 5-7% in FY25, compared to the estimated 6% growth in FY24.
- The IT industry size is pegged at $250 billion, generating employment for over 50 lakh professionals.
- Crisil’s director, Aditya Jhaver, stated that the slowdown in technology spending will weigh on revenue growth.
Fitch Ratings on Digital Transformation and AI Adoption
A recent Fitch Ratings report provides a positive long-term outlook for the IT sector.
- Key Growth Drivers:
- Digital transformation investments will continue driving IT demand.
- Cloud computing and AI adoption will be key areas of growth.
- Generative AI (GenAI) revenue is expected to rise, as businesses focus on enhancing digital infrastructure and cybersecurity.
Despite these positive trends, the short-term outlook remains challenging, as firms like Infosys struggle with weaker deal pipelines.
Infosys Q3 FY25 Results: Revenue and Profit Growth
Infosys reported its Q3 FY25 financial results, showing moderate revenue growth and an increase in net profit.
Key Financial Highlights:
- Net Profit:
- Infosys posted a consolidated net profit of ₹6,806 crore, reflecting an 11.46% YoY increase.
- Revenue Growth:
- Total revenue from operations rose 7.58% YoY to ₹41,764 crore, up from ₹38,821 crore in Q3 FY24.
Sectoral and Geographical Performance:
- Top Business Segments:
- Financial services: 27.8% of total revenue
- Manufacturing: 15.5% of total revenue
- Retail and energy sectors also contributed significantly
- Geographical Growth:
- India & Europe: Double-digit YoY growth
- North America: Grew nearly 5% YoY
- Key Observations:
- Financial services in the US have shown consistent growth.
- European financial services rebounded in Q3, adding to Infosys’ overall revenue.
Shruti Shibulal Buys Infosys Shares Worth ₹494 Crore
In a separate development, Shruti Shibulal, daughter of Infosys co-founder SD Shibulal, purchased Infosys shares worth ₹494 crore via an open market transaction.
- Transaction Details:
- She acquired 29,84,057 shares at an average price of ₹1,657 per share.
- Promoter Holdings:
- The purchase increases her stake in Infosys, reinforcing confidence in the company’s long-term prospects.
Conclusion
Infosys’ share price decline of 5% highlights growing investor concerns over its growth outlook and valuation.
- Morgan Stanley’s cautionary note on weaker deal wins and valuation risks triggered the recent stock drop.
- Crisil projects slow IT growth in FY25, while Fitch remains optimistic about AI-driven expansion.
- Infosys’ Q3 FY25 results showed stable growth, but global macroeconomic challenges continue to pose risks.
With uncertainty surrounding IT spending trends, Infosys investors remain watchful of future deal wins and earnings performance.
