Infosys is the only constituent of the Sensex to buck the trend of decline so far in the calendar year 2016. Shares of Infosys gained close to 3% since the beginning of the year even as the Sensex posted a declined 6.4%, Bloomberg data showed.
This outperformance of Infosys was driven by positive Q3FY16 results. For the quarter ending December, dollar revenue climbed 0.6% Q-o-Q to $2.4 billion, while the net profit went up by 6.6% sequentially to Rs 3,465 crore. The company also announced that in FY16 its topline may grow between 8.9% and 9.3%, compared with an earlier guidance of 6.4% to 8.4%.
“Infosys has fared better than Street estimates in each of the three quarters of FY16, clearly attesting to much better consistency,” said Amit Sharma, equity analyst at JP Morgan. “Market share and mindshare of Infosys with top clients is increasing, win rates in large deals are improving while attrition is moderating,” Sharma added.
The forward valuations of Infosys have surged significantly in the last one month, data showed. One year forward price to earnings (P/E) multiple of Infosys is currently 19.43 times against Sensex’s forward P/E of 15.86 times.
Buoyant stock performance of Infosys has helped the software giant to surpass its rival TCS in terms of valuations for the first time in the last five years. One year forward P/E of TCS is currently 18.85 times.
This outperformance of Infosys comes at a time when shares of other IT companies have significantly declined. For instance, shares of India’s largest IT company, TCS, have declined nearly 6% during the year so far, while shares of Wipro fell by 1.7%. The gauge of IT sector shares in the BSE has lost close to 4% since January.
Analysts believe that the situation will be tough for Indian IT companies in near and medium term. Kotak Institutional Equities observed in a note to investors that IT companies could register slower growth rates due to pricing pressure and diminishing returns in core business services. “We would not be surprised with 2-3% lower growth rates for the industry. The good thing is that stock prices are already building in some slowdown. Companies that have track records of delivering in unstructured opportunities will lead the growth; we back Infosys on this count,” the report said.