Bengaluru, India – Infosys, a leading Indian IT services company, has revised its revenue growth guidance for fiscal year 2027 (FY27) downwards following its Q2 earnings report. This adjustment has prompted a mixed reaction from brokerage firms, with many revising their stock price targets for the company.
Guidance Cut and Analyst Reactions
The IT major now projects a revenue growth of 1-2% year-on-year for FY27, a reduction from its previous estimate of 1.5-3%. This revised outlook comes despite an anticipated 170 basis points contribution from acquisitions, which remains unchanged. The lower end of the new guidance range accounts for potential macroeconomic deterioration, while the upper end anticipates an improved environment.
Analysts from various brokerages have weighed in on the implications:
- Nirmal Bang set the lowest target price at Rs 902, down from Rs 968, recommending a 'Sell' rating.
- Conversely, Asit C Mehta holds the highest target at Rs 1,425 per share.
Nomura noted that Infosys cited increased competitive intensity and resulting pricing pressure as factors leading to lower-than-anticipated price increases and softer volume growth in Q2, contributing to the guidance revision. Despite this, Nomura retained its 'Buy' rating but slightly trimmed its target to Rs 1,300 from Rs 1,310.
Macroeconomic Headwinds and Operational Factors
HSBC acknowledged that Infosys's guidance revision largely aligned with its own estimates, observing that Infosys appears to be underperforming peers such as TCS, Cognizant, and HCL Technologies. However, HSBC suggested this could be a cyclical rather than structural issue, possibly reflecting the timing of large deal ramp-downs or losses. A positive development highlighted by HSBC was the signing of a $2 billion mega-deal in Q2, expected to contribute approximately 1% incremental growth in FY28.
However, HSBC also cautioned that while weaker growth in the second half of the fiscal year is largely priced in, margins remain vulnerable to downside surprises. Currency movements and the staggered implementation of wage increases in H2 are expected to add further pressure on profitability.
Segment Performance and Brokerage Adjustments
According to BNP Paribas, segments such as Financial Services, Energy & Utility Services, and Manufacturing continued to show strong demand. In contrast, the Retail and Hi-Tech sectors in the US experienced weakness, attributed to subdued discretionary demand and client-specific challenges. Retail also saw higher third-party revenue in the prior quarter, contributing to its decline.
Other notable brokerage adjustments include:
- CLSA: 'Hold' rating, target raised to Rs 1,003 from Rs 976.
- UBS: 'Buy' rating, target cut to Rs 1,415 from Rs 1,430.
- JPMorgan: Maintained 'Neutral' rating and Rs 1,050 target.
- Jefferies: Target cut to Rs 1,140 from Rs 1,160.
- Citi: Target raised to Rs 1,105 from Rs 1,030.
- Morgan Stanley: Target raised to Rs 1,075 from Rs 976.