Shares of Infosys were reeling under selling pressure on Thursday as investors turned jittery ahead of March quarter earnings, slated to be released later today. The market sentiment was further dented after Tata Consultancy Services (TCS), the country’s largest software firm, reported lower-than-fourth quarter results, which triggered broad-based sell-off across S&P BSE Information Technology (IT) index. The BSE IT index was the worst performer among sectors, while Infosys emerged as the top laggard on the BSE Sensex.

Infosys shares opened 1.1% lower at ₹1,413 against the previous closing price of ₹1,428.45 on the BSE. During the session, the stock declined as much as 3.1% to hit an intraday low of ₹1,383.80, while the market capitalisation dipped to ₹5.76 lakh crore. The counter witnessed a surge in volume trade with 4.25 lakh shares changing hands on the BSE against two-week average volume of 2.04 lakh stocks.

Infosys shares currently trade below its average target of ₹1,720.36, a potential upside of 24% from Wednesday’s closing price, as per Trendlyne data. It hovers around its 52-week low of ₹1,355.50 touched on September 26, 2022, while it is down 21% against its 52-week high of ₹1,759.45 touched on April 13, 2022. The IT heavyweight has had disappointing performance in the last year, with its shares falling 20% in a year, 2% in the past six months, and 3% in a month. In the calendar year 2023, the stock has lost nearly 9% as compared to 2% fall in BSE IT index and 1.6% decline in the BSE Sensex.

The Bengaluru-headquartered company is expected to release its fourth quarter earnings report post market hours today. Investors will keep a close eye on the company's guidance for FY2024E, demand and margin outlook, deal wins and pipeline, cost take-outs, and industry outlook. IT bellwether Tata Consultancy Services (TCS) on Wednesday kicked off earnings season by releasing its March quarter reports, which fell short of market expectations.  

According to analysts at ICICI Securities, there will be no change in relative positioning despite worsening macros as it has not translated to client cutting spending on existing projects. Ahead of Q4 results, the brokerage house has upgraded Infosys rating to “Buy” and revised upward the 12-month target price to ₹1,759 from ₹1,772 estimated earlier, implying 28% potential upside.

ICICI Securities expects Infosys’ revenue growth to be soft at 0.1% on quarter-on-quarter (QoQ) in constant currency (CC), citing that the fourth quarter is a seasonally weak quarter for the country’s second-largest software company. This will translate to 16.4% year-on-year (YoY) CC growth in FY23E, which is within the company’s guided range of 16-16.5%.

“We estimate 110bps cross-currency tailwinds in Q4FY23. We model 21.5% EBIT margin, flat QoQ in Q4FY23 and 21.2% in FY23, in line with management commentary of achieving margins near the lower end of guidance of 21-22%,” the brokerage said in a report.

The agency expects the IT company to start the year with conservative guidance of 6-8% given the recent events in global banking industry (BFSI accounts to 32% of Infosys’ annual revenue) and overall caution in new deal signings. It has cut Infy’s FY24 dollar revenue estimate by 1.2% and assume 7.4% YoY CC growth in FY24 on slower tech spending in the BFSI vertical and its follow-on effect on other verticals. Infy’s exposure to regional banks is not material, but the ongoing uncertainty in the U.S. and European banking industry may lead to moderation in BFSI revenue growth in the near term.

The brokerage in its report said margin headwinds in Q4FY23 will be visa costs and lower working days, whereas improving subcon costs, utilisation will be key tailwinds. On attrition, the agency said it is closer to desired levels and supply-side pressures are easing off. Infosys has witnessed the exit of two key presidents - Mohit Joshi and Ravi Kumar - in the last six months.

In the December quarter of 2022, Infosys reported a 13.4% year-on-year growth in its net profit at ₹6,586 crore. The IT giant posted a 20% year-on-year jump in its revenue to ₹38,318 crore during the third quarter compared with ₹31,867 crore in the corresponding period a year ago. The company also revised its revenue guidance for FY23 to 16%-16.5% from 15-16% earlier.

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