Infosys, Wipro shares fall after strong quarterly results; should investors buy now or stay away?

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Updated: Jan 14, 2021 12:39 PM

Shares of Infosys dropped 3.4% on Thursday morning while those of Wipro fell 3.7%, despite the strong quarterly results posted by both the Information Technology firms.

Sensex, Nifty, stock marketThe year 2020 has shown us how some of the biggest tech giants – Facebook, Apple, Amazon, Netflix and Google – have become increasingly integral to the lives of urban, aspirational Indians.

Shares of Infosys dropped 3.4% on Thursday morning while those of Wipro fell 3.7%, despite the strong quarterly results posted by both the Information Technology firms. On Wednesday, Infosys reported a 12.3% on-year jump in revenue while its net profit grew 16% to Rs 5,200 crore. Wipro, on the other hand, said its revenue grew 1.3% and net profit surged 20% on-year basis. Does this weakness in the share price of both the IT majors present a buying opportunity for investors or is it a sign to stay away despite the stellar results posted by the firms?

Infosys — All round growth and strong deal pipeline

Analysts at Motilal Oswal highlight that Infosys has reported its best on-quarter growth in revenue in the last eight years. “The company reported its best-ever TCV of $7.1 billion (net new wins of 73%), 2x book-to-bill, and above the combined TCV of the last three quarters,” the brokerage firm said in a report. They added that Infosys is likely to stay a beneficiary of a recovery in IT spends in the next fiscal.

Infosys has raised its revenue guidance to 4.5-5% from 2-3%, earlier given for the present financial year while raising EBIT margin guidance band to 24-24.5%. “We believe that 23-24% can end up being a sustainable band in the absence of pricing pressure and even increase for digital competencies, structural efficiencies that vendors can retain such as offshore shift and pyramid correction,” said Kotak Securities in a note. Almost all geographies posted a growth on-year basis for Infosys.

Ratings

Edelweiss Securities has ‘Buy’ call on Infosys with a target price of Rs 2,124 per share. “We maintain that Infosys, given its significant contribution from cloud and digital, remains a major beneficiary of this tech upcycle,” they said. Kotak Securities has pinned a Fair Value of Rs 1,530 per share while Motilal Oswal has a target price of Rs 1,600 apiece, both with a ‘Buy’ rating. Shares of Infosys are currently trading at Rs 1,343 per share.

Wipro — getting its mojo back?

After a disappointing few years, analysts at Edelweiss said that Wipro now seems to have gotten back on a growth path with most segments contributing to the spurt. “Five of the seven strategic business units grew above 4% on a sequential basis (in cc) led by strong demand in digital transformation. Both Europe and Americas grew at a robust pace while Rest of World was slightly weak,” they added. Wipro managed to close 12 new deals in the October-December quarter.

Wipro has given a guidance of 1.5-3.5% growth for the next quarter, this has been termed as reasonable by Kotak Securities. “Wipro has made aggressive changes to organization structure, roles and personnel. The changes are audacious and departure from the incremental changes of the past,” They added. The guidance should help Wipro return to growth on-year basis in March this year. Although Motilal Oswal expects Wipro to clock double-digit USD growth next year, it expects some hiccups. “We continue to see Wipro’s growth trailing v/s that of peers as we await the impact of its new strategy on growth and see limited levers on margins from current levels,” analysts at Motilal Oswal said.

Rating

Motilal Oswal has a ‘Neutral’ rating with a target price of Rs 450 on the stock saying that the current valuations fairly value-in the performance. Kotak Securities has an ‘Add’ rating with a Fair Value of Rs 465 per share which cautioning that growth is unlikely to converge with peers. Edelweiss Securities has a ‘Buy’ call with a target price of Rs 550 per share. Currently, the stock trades at Rs 442.

(The stock recommendations in this story are by the respective research and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)

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