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Share price of Infosys underperforms IT index. Purchase opportunity or avoid the stock?

The share price of Infosys may encounter short-term resistance between 1,500 and 1,520, while support at 1,460 presents a purchase opportunity.

Even though the firm just a day earlier announced an expansion of its strategic alliance with US chipmaker Nvidia, market participants still viewed the news as a positive development, Infosys’ share price fell by around 1% during intraday trade on the BSE on Thursday. This loss was in keeping with a bad market sentiment.

According to Mint, Infosys on Wednesday declared the expansion of its strategic alliance with American chipmaker Nvidia. As part of the agreement, Nvidia will provide Infosys with access to its artificial intelligence (AI) models, tools, applications, and computing infrastructure in exchange for Infosys putting 50,000 of its more than 3.36 lakh employees through training at a specialized center of excellence (CoE).

The second-largest information technology (IT) services company in India by market capitalization, Infosys, co-founder and chairman Nandan Nilekani, stated in a stock exchange filing that the business was “transforming into an AI-first company to better provide AI-based services to our clients worldwide.”

In the past year, the share price of Infosys has notably lagged behind both the benchmark Sensex and its sectors index, BSE IT. In comparison to the BSE IT, which has increased by roughly 21% over the past year, Infosys’ share price has increased by only about 8%. The Sensex has increased by around 12% throughout the same time frame.

However, given the stock’s impressive recent increases, sentiment seems to be strengthening for Infosys. In fact, if we look at a shorter period of time—the last three months—the stock has increased by more than 14%, while the BSE IT has up by 12%, and the Sensex has increased by 4%. The stock has been profitable on a monthly basis since May of this year.

Infosys dramatically lowered its revenue outlook for FY24 from 4-7 percent to 1-3.5 percent while announcing its June quarter earnings this year, but it kept its operating margin forecast. It emphasized how well-positioned it was for future growth due to its excellent deal pipeline and large deal closes.

It’s probable that most of the negative effects for Infosys and other significant Indian IT companies have already been taken into account, despite the fact that the US economy is predicted to avoid a recession and the risk of rate increases is now low.

On October 12, Infosys will release its Q2FY24 financial results and interim dividend. On October 11 and 12, Infosys’ board of directors meeting will be held. Prior to the release of the results on October 12, the company will hold an investor call.

Fundamental opinions on the pricing of Infosys

‘Hold’ is the 39 analysts’ ad consensus recommendation for Infosys, according to Trendlyne.

Global brokerage firm Bernstein recently declared Infosys to be its top choice among IT service providers. According to CNBC-TV18, Bernstein noted that the financial year 2025 has become the center of investors’ attention, and that certain large-cap IT firms, including Infosys and TCS, may be in a better position than their mid-cap peers going into the fiscal year 2025.

Infosys is still one of the top recommendations for the brokerage firm Kotak Institutional Equities.

Due to the recent ramp-up of major agreements signed, a robust pipeline of cost take-out projects, and expected increase in discretionary spending, Kotak predicts a recovery in revenue growth for a few large corporations to 9-10% in FY25E from roughly 4-5% in FY24E.

“Companies that can address both agendas—cost take-out and the clients’ transformation journey—are best positioned; Infosys, TCS, and HCL Tech meet the criteria. Our top picks are Infosys and HCLT, Kotak stated.

Kotak has a buy call on Infosys and increased the stock’s target price from 1,550 to 1,710.

Brokerage firms noted that Infosys and other significant IT players recently announced a number of deals for the development and upkeep of digital platforms as well as for development, modernization, and maintenance services driven by AI (artificial intelligence) and automation.

“Due to enterprise demands for cost containment, Indian IT has recently secured many large contracts. These agreements have benefited Infosys, HCL Tech, and TCS. We believe that deal flow has stabilized following the shift from larger programs powered by cost take-outs, which have longer sales cycles, to short-tenured, short-discretionary spending initiatives. We anticipate cost take-out agreements to continue in CY2024, combined with an increase in discretionary expenditure, according to brokerage company Kotak.

At this point, the share price of Infosys has some valuation comfort. In comparison to the median PE of 29.44, it now has a PE (price-to-earnings ratio) of 25.2. In comparison to the median PB of 8.62, its current PB is 8.17.

technical opinions on the price of Infosys

Although there are some indicators of stock tiredness, according to technical analysts, the stock is still buy-worthy over the long run and should be accumulated in case of falls.

At this point, Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share & Stock Brokers, noted that Infosys seemed a little worn out at higher levels close to $1,500.

Support is indicated near 1,425-1,450 and resistance is seen near 1,500-1,525, as we move forward. Additionally, as the Ichimoku cloud angle flattens, it suggests some sideways movements in the upcoming sessions, according to Patel.

The Nifty IT Index experienced a multi-month breakthrough on the weekly charts, according to Foram Chheda, CMT, and Founder of In line with this, Infosys experienced a great run in the past two months, gaining about 16% from the lows seen in July to the latest high.

Chheda noted that the stock may see immediate resistance in the range of 1,500-1,520. However, she added that as long as the 1,460 level is held, all price declines can be seen as a chance to buy because support is located close to that level and the stock is poised to complete a golden crossover, in which the 50-day moving average will cross above the 200-day moving average.