UBS ignores no-guidance buzz, rates Infy neutral

Bank feels Infosys may not take such a step as it will be seen as a signal of deteriorating outlook

Investors were always driven by the full-year or quarterly guidance from Infosys, but now amid reports that the IT major may stop providing guidance, the markets are viewing the news as potentially detrimental to investor sentiments towards the company in the future. However, UBS feels that Infosys is unlikely to take such a step as it will be perceived as a signal of deteriorating outlook and a change in its organisational culture.

The guidance provided by Infosys has always been key to its performance in the stock market -- even more than its actual quarterly performance.

In four out of the past five years, the Infosys stock was weak ahead of and post initial guidance -- an indicator of investor caution and management conservatism.

With investor expectation for FY13 pegged around Nasscom's guidance of 11-14% annually, Infosys seems to have less flexibility in projecting a guidance for Q1FY13, in which the Nasscom expects +3% q-o-q dollar revenue. Anything lower is not likely to be appreciated by the market.

While UBS expects Infosys's FY13 guidance to be in line with its current expectations, it says a revenue guidance of at least 14% is needed to boost the stock. The company may not guide higher than 14% dollar revenue growth to avoid limiting stock price upside from current levels.

UBS maintains a neutral rating for Infosys based on an unlikelihood of a stronger-than-expected guidance.