Shares of Infosys, the Bangalore-based IT giant, fell by as much as 12.2% on the Bombay Stock Exchange on Thursday, marking the worst single-day drop since 2019. The company’s poor quarterly results and FY23 guidance, along with concerns about customer sentiment, led to uncertainties around the order outlook for the next 1-2 quarters, causing a sell-off that also impacted other IT stocks.
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Bangalore-based IT giant Infosys suffered its biggest one-day stock drop since 2019, signaling a significant setback for the tech company’s investors. Infosys’ shares dropped by 9.6%, equivalent to Rs. 58.65 ($0.79) per share, after the company released its quarterly earnings report, which failed to meet market expectations.
The company reported a 2.3% decline in Q4 net profit at Rs. 5,076 crores ($684 million), while revenue increased by 6.4% YoY to Rs. 28,902 crores ($3.9 billion). Analysts had expected a higher growth rate, with Refinitiv’s poll estimating a net profit of Rs. 5,179 crores ($698 million). Infosys’ shares fell by the most in a day since October 2019, wiping out Rs. 64,000 crores ($8.6 billion) in market cap, taking the total to Rs. 6.04 lakh crores ($81.6 billion).
The CEO Attributes Slower Growth to Shift in Demand and Pandemic Challenges
The drop in Infosys’ share price is also significant because the company is a bellwether for the Indian IT industry. Infosys is the second-largest IT services provider in India, after Tata Consultancy Services (TCS), and its performance is closely watched by investors and analysts.
The company’s CEO and managing director, Salil Parekh, attributed the slower growth to a shift in demand from traditional IT services to digital technologies. “We continue to see strong demand for our digital offerings and cloud capabilities, but we also recognize that the traditional business is not going to disappear overnight,” he said in a statement.
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Parekh also acknowledged that the COVID-19 pandemic had created challenges for the company. “We saw an impact in some of our geographies due to the resurgence of COVID-19 cases, but we remain optimistic about the demand for our services,” he added.
Despite the disappointing earnings report, some analysts remained optimistic about Infosys’ long-term prospects. “While Q4 performance was below expectations, we continue to see a strong demand environment for IT services, and expect Infosys to benefit from this trend in the coming quarters,” said JPMorgan analyst Gaurav Rateria in a note to clients.
However, other analysts were less sanguine. “We think there are still execution risks in Infosys’ large transformation deals, and remain cautious on the company’s growth prospects,” said Sanford C. Bernstein analyst Chris Lane in a note to clients.
Challenges Mount for Indian IT Industry as Infosys, TCS, and Wipro Disappoint in Q4 Earnings
Infosys’ Q4 results follow a series of disappointing earnings reports from Indian IT companies. TCS, India’s largest IT services provider, reported a weaker-than-expected Q4 earnings earlier this month, while Wipro, another major Indian IT company, reported a decline in profit for the same period.
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The weak performance of Indian IT companies has been attributed to a number of factors, including the impact of the COVID-19 pandemic, a slowdown in demand from key markets like the United States, and increased competition from global IT services providers.
Despite the company’s recent setbacks, however, many analysts remain bullish on the long-term prospects for Indian IT companies, citing their strong talent pool, competitive pricing, and growing demand for digital.
