Infosys shares plunge to 1-year low: Should you Buy, Sell or Hold?

Infosys share price: Introduction

In the last five years, the Indian equity market has seen a lot of ups and downs. However, Infosys shares have consistently given returns to investors in this period. Infosys shares have given more than 200% returns to investors in the last five years.

However, if you look at Infosys's share price in 2022, the returns are negative. In 2022, the Infosys share price is down more than 25%, while the NIFTY IT index is down nearly 35%. What are the reasons for the fall in Infosys share price? We will look at them in detail in this article. Infosys shares plunged to a 16-month low of Rs 1,367.95 on BSE. 

Quick fact: Infosys was listed in 1993 and its IPO was 13% undersubscribed. Since its listing, Infosys has given multifold returns to investors. Later, Infosys became the first Indian company to get listed on Nasdaq in 1999.

Infosys share price: Deepdive

Why has Infosys' share price fallen?

Though Infosys share has fallen considerably this year, it is not alone in the pack. Other IT companies, including global tech companies, have corrected this year. Let us look at the reasons why Infosys share is trading at its 52-week low:

Valuation: There has been a huge fall in the valuation of IT shares since last November. In general, the valuations of IT companies are trading at 30x - 35x PE. Investors see potential in other companies where the valuations are around 18x - 20x P/E. In the past ten years, IT sectors used to trade on 18x 1 year forward P/E. Now it is trading at 24x 1 year forward PE. Hence, investors are staying away from the Infosys share and other IT stocks.

Increasing interest rate: Geopolitical and macroeconomic factors are also one of the biggest reasons for the recent downfall in Infosys shares. With rising inflation, the central banks are increasing interest rates. As the interest rate rises, it affects several economies and impacts the business performance of IT companies. Infosys has a major market in the US. With the increasing interest rate in the US, Infosys may start facing problems.

Attrition rate: Infosys has had the worst attrition rate in recent quarters (28.4% in Q1FY23), and as a result, they have to spend more to attract top talent or retain the existing ones.

Margins under pressure: Infosys is impacted by supply-side pressures, travel costs, and a rise in wages. The operating margins fell by 3.7% on year to 20.1% in Q21FY23.

Cut in employee variable pay: Infosys share fell in the last week of August after it was reported that Infosys has reduced the variable payout for all its employees to about 70% for Q1FY23.

Infosys share price: Positives for Infosys shareholders

Not all is negative for Infosys shareholders. There are some positives that investors make look at:

• Rising cost to stop: As per experts, the trend of increasing costs will stop, and the margins are likely to stabilise. 
• Strong order book: The current order book of Infosys remains strong, which will sustain the near-term growth trajectory.
• Rupee-Dollar Exchange: The Rupee-dollar exchange rate is a crucial factor for Infosys. Investors should note that depreciating the rupee against the USD is good for the margin as dollar earnings are more in terms of rupees.

Infosys share price insight

Out of 180 trading days that Infosys stock has seen in the year so far, below are the Infosys share price movement insights:

• Infosys share price ended in green on 89 trading days
• Infosys share price ended in red on 91 trading days
• Infosys share price was unchanged on 0 trading days

Infosys Apr-Jun 22 results

• Profits: The company reported a 3.2% increase in its profit to Rs 5,360 crore. However, it was below Street estimates.
• Revenue: The revenue from the operations jumped to Rs 34,470 crore, up nearly 23.6% on the year and 6.8% from the previous quarter. 
• Guidance: Infosys has maintained its margin guidance for FY23 between 21% and 23% and has increased the revenue guidance between 14% and 16%.
• New deals: The company added 106 new clients in Q1FY23.

For detailed Q1FY23 results, you can check our report here.

Infosys share price: Buy, Sell or Hold

IDBI Capital: They have changed the rating from BUY to HOLD post the Q1FY23 results and have given a target price of Rs 1510 per share. They said that there are certain pockets of weakness in retail and mortgage which will dent revenues in the longer run. In addition, lowering margin guidance is another dampener.

Antique Stock Broking: They have lowered the target price to Rs 2,050 from Rs 2,100 but have maintained the BUY rating on the stock. The firm said that Infosys has been outperforming peers over the past few quarters due to the ramp-up of large deals, which has been missing in the past few quarters. They see deal momentum coming back in FY23 and forecast Infosys' medium-term growth to be similar to TCS, and expect the pay-out ratio to improve gradually.

Prabhudas Lilladher: The firm has trimmed the target price from Rs 1646 to Rs 1630 posts its Q1FY23 results.

Infosys share price: Target prices by various brokerages