Infy slump signal spooks IT stocks, market

Tags: News
A lower earnings prediction from the Infosys management spooked not only the IT bellwether, but also other IT stocks, which dragged the equity benchmarks lower in Thursday’s trading.

Executive chairman NR Narayana Murthy, CEO SD Shibulal and CFO Rajiv Bansal told a Barclays investor conference on Wed­nesday that their conversations with 35 clients over the past six weeks indicated that “revenue traction in certain verticals remains challenging,” Barclays analysts Bhuvnesh Singh and Hitesh Das said in a report.

This came as a rude shock for investors, who pulled down the Infosys ADRs (American depository receipts) by 21 per cent in overnight trading in New York and the stock by 8.54 per cent in Mumbai trading.

The trio indicated that Infosys continued to see weakness in client spending throughout this quarter (4Q FY2014) and might be able to just about meet the lower end of its annual revenue growth guidance.

Some of the clients across verticals have seen slowdown in their businesses at the broad level, leading to unanticipated project rampdowns and cancellations, they said.

The guidance triggered a panic in both the US and domestic markets. Infosys ADRs slumped to $43.10 at Wednesday’s close in New York, marking the steepest decline since April 2003. On Thursday, the stock crashed over 8.5 per cent and hit a low of Rs 3,340 in Mumbai trading, before closing at Rs 3,357.50.

Murthy and his team even hinted that the factors that hurt client sentiments in Q4 of FY2014 might impact revenues in the first half of 2014-15 as well.

Infosys shares had hit a 52-week high of Rs 3,847 on BSE earlier this month climaxing a meteoric rise that had begun on June 1, 2013, when Murthy returned from retirement to take over as executive chairman replacing KV Kamath.

There was an 11.93 times spurt in trading volume on the counter on Thursday; shares worth Rs 157.99 crore were traded on BSE and another Rs 1,726.13 crore on NSE.

The Infosys leadership told Barclays that CY14 spending in retail and consumer packaged goods (CPG) segments could be weak, as aggressive promotions and festive season discounts impacted the bottomlines of these companies. Also, the growth in the US was slower due to a harsh winter and in the emerging markets due to weak macro-environments.

It also faced some client-specific issues,” the Infosys leadership said.

Ankita Somany, an IT analyst with Angel Broking, said, “Infosys saw attrition at the top level, with nine employees leaving the firm in the second half of 2013. This could likely impact the company’s performance adversely in the near term.”

PTI adds: Infosys said its senior VP and head of computers and communications division (CCD) K Muralikrishna has sold shares worth Rs 5.48 crore. Post sale of shares, his stake in the company fell to 0.00966 per cent (55,512 shares) from 0.1227 per cent (70,512 shares), it added.

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