Infosys has rallied over 25 percent, so far, in 2019, supported by strong revenue, consistent deal winds and a fairly strong growth outlook. With a market capitalisation of Rs 3.6 lakh crore on the BSE, the IT giant remains a strong defensive player in a weakening demand environment, say experts.
The Bengaluru-headquartered company has been hitting fresh 52-week highs consistently in 2019. It did the same on September 6 at 847.40 on the BSE. Experts are in favour of remaining invested in the stock for a long term, but say that a mild profit booking could take place at higher levels as we approach September quarter results.
Kotak Institutional Equities maintained its add rating on Infosys and increased the target price to Rs 850 from Rs 775, though the outlook is still cautious.
The brokerage’s confidence on growth emanates from the large deal ramp-up and an improved positioning in clients/verticals, thanks to accelerated investments in FY2019.
“Efficiency drive will lead to margin in 21-23% band without baking in the recent INR depreciation. Attrition at the senior management level is under control. We bake in revised currency rates of KIE economist resulting in 2-4% increase in FY2020-22 EPS,” the brokerage said in a report.
Source: Brokerage Reports
Source: Brokerage Reports
The software services provider’s June quarter profits fell 6.8 percent sequentially but raised its full-year constant currency revenue guidance to 8.5-10 percent.
The company increased its FY20 revenue growth guidance range to 8.5-10 percent in constant currency from 7.5-9.5 percent earlier and maintained operating margin guidance range of 21-23 percent.
Recent interaction with brokerage firms suggests that the management is confident of achieving 8.5-10% c/c revenue growth guidance for FY2020E
UBS also maintained buy rating on Infosys, with a target price of Rs 850.
The global investment bank sees higher FY20 revenue visibility.
The margin improvement is likely to help the outperformance. The demand trends have softened for the sector, but Infosys remains a strong defensive in a weakening demand environment.
Sectoral outlook
The CNX IT index has moved up by around 3 percent in the last one year and outperformed the Nifty by 9 percent in the same period.
The steady performance was led by a stable demand environment, strong deal wins and the rising share of the digital segment.
“TCS continues to trade at a premium valuation on account of its strong business model and superior execution capabilities. HCL Tech and Tech Mahindra are trading significant discount to large peers due to certain challenges in their business models,” Sharekhan said in a report.
“We believe margins would remain under pressure, the rupee depreciation could be a wild card from margin tailwind. We prefer HCL Tech, and Infosys and Tech Mahindra among largecaps,” the report added.
Technical outlook
After consolidating in a broader range of Rs 760-800 levels, the stock gave a fresh breakout above the key resistance level of Rs 800 last week along with marginally higher volumes.
“The breakout has been observed above the ascending triangle formation, which is generally traded as bullish pattern,” Shitij Gandhi, Senior Research Analyst, SMC Global Securities Ltd, told Moneycontrol.
“Traders can accumulate the stock in the range of Rs 810-815 levels for the upside target of Rs 859 levels, with a stop loss below Rs 780.”
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest business news, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
