Q1 IT earnings: Infosys' downward guidance sparks investor nervousness
The recent developments surrounding Infosys have left investors questioning whether it is an isolated incident or indicative of broader challenges within the industry. As the company revised its guidance downward despite delivering Q1 earnings in line with expectations, caution swept through the market, leading to a decline in stock prices.
The Nifty was steadily approaching the 20,000 mark and market sentiment was positive until Infosys delivered its Q1 earnings report. While the earnings were in line with expectations, the company revised its guidance downward, projecting growth of 1 to 3.5 percent instead of the previously anticipated 4 to 7 percent. This unexpected development made investors nervous, prompting some profit-taking on Friday.
The key question now is whether Infosys' situation is an isolated issue or a reflection of broader industry challenges. This uncertainty contributed to cautiousness among investors, causing a decline in stock prices.
Comparatively, other IT companies like HCLTech, L&T Technology Services (LTTS), and Coforge have maintained their optimistic outlook and reaffirmed their original guidance. Coforge's management, in particular, expressed unwavering confidence in meeting their targets.
However, achieving these goals won't be easy, especially for HCLTech and LTTS, as their growth rates must be in the range of 3 to 5 percent and 4 to 5 percent respectively on a quarter-to-quarter basis.
Moreover, the current valuation of IT companies has become a matter of concern. The Nifty IT index, which previously traded at around 20 times on a PE basis, has now risen to approximately 23 times. Some midcap companies are even trading at a higher PE multiple of around 25 times. This could undermine the valuation argument in favour of IT stocks.
Ultimately, the disappointment from Infosys' revised guidance overshadowed the overall market sentiment, making it the focal point of the day.
(Edited by : Sangam Singh)
First Published: Jul 21, 2023 5:47 PM IST
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