Investors cheer Infosys’s upbeat guidance


Infosys Ltd’s March quarter revenues have grown by 1.6% sequentially to $2.446 billion, slightly lower than the Street’s expectation of 1.9% growth. Profit margins were higher than expected, but largely because of a squeeze on hiring and partly due to a write-back of provision for doubtful receivables. The key US market grew just by 0.6% in constant currency terms. And banking and financial services, the largest vertical for the company, grew just 0.2%.

If Tata Consultancy Services Ltd (TCS) were to announce on Monday results similar to the one Infosys did on Friday—revenue growth missed estimates and key business segments were struggling for growth—its stock would be punished. Infosys’s American Depository Receipts (ADRs), on the other hand, were up 8% on the New York Stock Exchange at 8.20pm IST. The company has momentum on its side, and investors are willing to excuse a slight miss on growth expectations after three successive quarters of above-par performance.

Besides, TCS shares had outperformed in the past month, and now trade at a slight premium to Infosys based on fiscal year 2016-17 estimates. The rally in Infosys ADRs is partly to make up for recent underperformance.

Also, the company has guided for constant currency growth of 11.5-13.5% for FY17, slightly (50 basis points) higher than the Street’s expectation. Earlier this year, Cognizant Technology Solutions Ltd guided for growth between 10% and 14% for 2016. The wide range suggested greater uncertainty about demand for IT services in the current year.

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