Infy Q3 results fuel rally in IT stocks

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SummaryThe IT giant’s net profit grew 21.4% y-o-y to R2,875 crore in the third quarter from R2,369 crore a year ago.

Share of Infosys surged as much as 3.59% after the IT major posted better-than-expected results for the quarter ended December. The IT giant’s net profit grew 21.4% y-o-y to R2,875 crore in the third quarter from R2,369 crore a year ago.

Results sparked a rally in the IT pack with HCL Technologies and Tata Consultancy Services (TCS) both touching their all-time highs of R1,318.9 and R2,307, respectively. The BSE IT Index was the top performer on Friday with gains of 2.16% . The Infosys scrip closed 2.8% higher at R3,548.9.

Experts feel demand would be the chief driver for the stock price. “Margin expansion driven by cost optimisation and improvement in win rates and continued strength in ‘bread-and-butter’ services would be key catalysts to the stock price. Apart from this, strength in sector demand should help Infosys’ return to healthy growth trajectory,” said JP Morgan in research report.

“Downside risks to the stock include lower-than-expected volume growth, weakness in demand environment, meaningful decline in pricing and realisations, adverse US immigration bill, rupee appreciation and higher-than-expected attrition,” said report.

Last year, BSE IT Index gained 59.78% owing to rupee depreciation. “The year ahead looks exciting for the IT services industry. The global economic environment has improved and clients are gaining confidence to invest in their strategic initiatives. The recent changes in organisational structure will strengthen client relationships and increase market share,” said Axis Capital in a recent report.

The company has been witnessing an exodus of its senior-level executives in the past few months. The latest exit was that of V Balakrishnan, who was tipped to succeed SD Shibulal as the next CEO.

Last year, in a major change in the top management, NR Narayana Murthy returned as executive chairman of Infosys in June. The move has revived investors’ confidence as the stock has gained 47.4% since then. Prior to this reshuffle, the scrip remained lukewarm with gains of only 3.84% between January-May, 2013.

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