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Nifty IT index slips 3%; Infosys, LTIMindtree slip up to 6% post Q3 results

According to Motilal Oswal Financial Services, Infosys and LTIMindtree, both companies with a high discretionary tilt, have provided a more cautious view on discretionary-spend recovery

Infosys

Infosys(Photo: Shutterstock)

Deepak Korgaonkar Mumbai

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Shares of information technology (IT) companies are under pressure, with the Nifty IT index falling 3 per cent on the National Stock Exchange (NSE) in Friday’s intra-day trade after Infosys and LTIMindtree provided a more cautious view on discretionary recovery.
 
At 09:44 AM, the Nifty IT index, the top loser among sectoral indices, was down 2.5 per cent, as compared to the 0.52 per cent decline in the Nifty 50. In one month, the IT index has performed in-line with the benchmark index, declining nearly 5 per cent each.
 
Today, Infosys is the top loser among IT stocks, having slipped 6 per cent to Rs 1,816 on the NSE in intra-day trade so far. LTIMindtree shares were down 3.5 per cent at Rs 5,770, while shares of Wipro, Coforge, Persistent Systems, Tech Mahindra, HCL Technologies and Mphais are down by around 1 per cent. 
 
 
TCS, however, was trading 0.34 per cent higher at Rs 4,144.15. The stock turned ex-dividend for Rs 76 per share (special dividend of Rs 66 and interim dividend of Rs 10 per share).
 
According to Motilal Oswal Financial Services (MOFSL), Infosys and LTIMindtree, both the companies with high discretionary tilt, have provided a more cautious view on discretionary recovery. Contrary to comments from its peers, Infosys saw its large deal pipeline grow, while short-cycle deals remained flat quarter-on-quarter (QoQ). The communications sector continued to struggle, and weakness in the automotive sector continued to drag growth in manufacturing, the brokerage firm said.
 
Meanwhile, Infosys posted better-than-expected numbers for the third quarter of the financial year 2024-25 (Q3FY25). It posted an 11.4 per cent year-on-year (YoY) increase in net profit, at Rs 6,806 crore for Q3FY25, surpassing Bloomberg's consensus estimate of Rs 6,773 crore. On a sequential basis, net profit rose 4.6 per cent.   Also read: 'Buy' Infosys to best play IT sector revival, say analysts post strong Q3
 
Revenue for the quarter grew 7.6 per cent YoY to Rs 41,764 crore, exceeding the Bloomberg consensus estimate of Rs 41,353 crore. Sequentially, revenue increased by 1.9 per cent, driven by sustained client spending. The operating margin for the quarter stood at 21.3 per cent, up 0.8 per cent YoY and 0.2 per cent sequentially.
 
The management stated that the deal pipeline is healthy with a mix of large and small deals, with the focus on cost and portfolio rationalisation type of deals. The company's management also revised upwards the company's revenue guidance to 4.5-5 per cent (vs 3.75- 4.5 per cent), albeit implying a weak Q4 due to seasonality impact from lower working days, furloughs and absence of third-party revenues. It further reiterated that margins are expected to be in the range of 20-22 per cent. The margins, in the near-term, would face pressure from the two-stage wage hike effective January 2025 and April 2025, ICICI Securities said in a note.
 
MOFSL has marginally tweaked its estimates for FY25/FY26/FY27E, reflecting the anticipated QoQ revenue decline in Q4 needed to meet the upper end of the company's guidance, alongside the cautious commentary. Nonetheless, Infosys has maintained its margin guidance of 20-22 per cent. The company remains a key beneficiary of the expected pickup in discretionary spending in FY26, the brokerage firm said in the company's results update.
 
As regards to LTIMindtree, ICICI Securities said while growth momentum will sustain, there will be continued pressure on margins in Q4 given the full quarter impact of the pass through to top Hitech client, furlough spillover and higher amortisation. Overall, the company is structurally well placed for growth aided by the robust total contract value (TCV) expansion (highest ever quarterly in Q3); deal ramp ups along with discretionary-led pickup.  Also Read: Wipro Q3 preview: Net profit may jump up to 16% YoY, revenue to remain flat
 
However, LTIMindtree remains MOFSL’s top idea for CY25, backed by its significant exposure to BFSI and Hi-tech verticals— both projected to rebound strongly over the next 12-18 months. The company’s capabilities in data, ERP, and application modernisation further underpin its ability to seize incremental demand in these segments. Despite current uncertainties around management succession and near-term margin headwinds, the brokerage firm anticipates meaningful margin recovery by FY27 and leadership clarity by H1CY25.
 
Meanwhile, HCL Technologies was down 2.4 per cent at Rs 1,750.05 in intra-day trade. In one week, the stock has plunged 12 per cent after it narrowed its 2024-25 (FY25) organic growth guidance to 4-4.5 per cent, compared to 3.5-5 per cent earlier. This guidance includes the impact (50 basis points) of its acquisition of Hewlett Packard Enterprise’s (HPE’s) Communications Technology Group (CTG) assets. The FY25 guidance implies fourth quarter (Q4) FY25 QoQ revenue growth of minus 1.3 to 0.6 per cent.
 
HCLT continues to see pressure in the Manufacturing vertical (due to continued stress in the Auto space and Aerospace verticals in Europe), as also in Life Sciences. It continued to guide for low to mid-single digit growth in the P&P business, according to analysts at Elara Capital.
 
In the brokerage's view, the upside seems limited from the current market price. “We tweak some of our estimates, i.e., FY27 on incremental cost pressures resulting in some downside estimates and hence target price comes down to Rs 1,570 (vs Rs 1620 earlier), based on 21x FY27E EPS of Rs 76.5. Key upside risks are any meaningful change in margin guidance in the future,” analyst said in Q3 results update.
 

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First Published: Jan 17 2025 | 10:52 AM IST

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