Infosys shares have been under pressure in recent months, trading around ₹1,134, down 34% from their all-time high. The stock has slipped below last week's peak of ₹1,198 as several analysts downgraded the IT services giant following its latest earnings report.
Analyst downgrades pile up
The company, one of the largest in the IT consulting space, is navigating a challenging environment driven by the rapid adoption of artificial intelligence. Competitors like Cognizant, Accenture, and Wipro have also underperformed, reflecting sector-wide headwinds.
Axis Capital, Arihant Capital, and IIFL Capital have all slashed their price targets, dragging the consensus rating down to 3.7 from 5, the lowest since January 2024. The downgrades follow Infosys's Q2 results, where management trimmed its full-year revenue guidance.
Q2 earnings and outlook
In the second quarter, Infosys reported revenue of $5.145 billion, up 1.5% year-over-year, with operating margin holding steady at 21%. AI-related revenue surged 29%, now accounting for 10.5% of total revenue, while free cash flow came in at $928 million.
However, revenue growth fell short of expectations as clients increasingly leverage AI and prioritize cost-cutting. For the full fiscal year, Infosys expects revenue growth of 1% to 2%, with operating margin between 20% and 22%.
Macro headwinds persist
The company's near-term outlook remains clouded by macroeconomic pressures, including rising inflation and geopolitical tensions. The US-Iran conflict has pushed crude oil prices to five-month highs, and transportation costs continue to climb, squeezing client budgets.
Valuation and technical signals
On the positive side, Infosys appears undervalued, trading at a forward price-to-earnings ratio of 15, well below the sector median of 21 and its own five-year average of 21.
Technically, the stock bottomed at ₹981 in July and has since rebounded, moving above a descending trendline and the 50-day exponential moving average. The MACD indicator also shows bullish momentum. Moreover, the chart displays an inverted head-and-shoulders pattern, a classic bullish reversal signal.
If the stock breaks above the resistance at ₹1,198, it could target the next key level of ₹1,280. However, a failure to hold above current support may negate the bullish setup.
While the contrarian case rests on valuation and technicals, the fundamental backdrop remains challenging. Investors should weigh the potential for a rebound against the ongoing AI disruption and macroeconomic uncertainty.
This article is for informational purposes only and does not constitute financial advice.
