Infosys share price falls 5% as Morgan Stanley raises concerns over growth outlook, stretched valuations; check what it says

“We see downside risks emerging for both the revenue growth of Indian IT services and valuation multiples,” wrote Morgan Stanley analyst Gaurav Rateria in an investor note.

The stock, currently trading at a P/E ratio of 23.9x, has shown mixed performance with a -11.3% return year-to-date, according to InvestingPro data.

According to news reports, analysts note that the company’s growth may be compromised due to weaker deal wins in fiscal year 2025 compared to the previous year.

Recent data from InvestingPro shows modest revenue growth of 3.02% over the last twelve months, with six analysts revising their earnings estimates upward for the upcoming period. Additionally, there is an absence of a broad-based recovery in discretionary spending, which could impact the company’s performance.

A weak rupee is favourable for Indian IT services companies as they earn a substantial amount of their revenue from the US market. Hence, a strong dollar benefits their profitability. A stronger dollar means when they convert their earnings back into rupees, they book higher revenue.

Crisil Ratings, in one of its reports, had said that it expects the Indian IT sector to grow at 5-7% in FY25, after a growth of 6% estimated to have been achieved in FY24.

The overall industry size is pegged at $250 billion, and it creates over 50 lakh direct jobs.

"The slowdown in technology spending will continue this fiscal year, weighing on the revenue growth of IT service providers," said Aditya Jhaver, director at Crisil.

Fitch Ratings, in one of its recent notes, said that the long-term growth prospects for the IT services industry are expected to be favourable, driven by customer spending on digital transformation, cloud computing, and generative AI (GenAI), Fitch said, adding that revenue share from GenAI may rise as customers solve problems relating to digital infrastructure, legal issues, and cybersecurity concerns.

Infosys Q3 FY25 Results

IT services major Infosys reported an 11.46% increase in consolidated net profit at ₹6,806 crore for December quarter FY25 and raised its guidance on the back of growth in financial services and manufacturing.

Revenue from operations for the quarter under review came in at ₹41,764 crore, 7.58% higher than ₹38,821 crore logged in Q3 FY24.

Financial services and manufacturing contributed 27.8% and 15.5%, respectively to the revenue, followed by retail and energy.

In geographical terms, Infosys saw double-digit year-on-year growth in India and Europe. North America registered an annual growth of nearly 5%.

"Financial services in the US continue to grow strongly in this quarter and over the past few quarters. We have seen a revival in European financial services during Q3.

Shruti Shibulal buys Infosys shares

Shruti Shibulal, daughter of Infosys co-founder and former CEO SD Shibulal, on Tuesday bought the IT major's shares worth ₹494 crore through an open market transaction.

According to the block deal data available on the National Stock Exchange (NSE), Shruti Shibulal, one of the promoters of Infosys, purchased 29,84,057 shares of the Bengaluru-headquartered IT giant.

The shares were acquired at an average price of ₹1,657 apiece, taking the transaction value to ₹494.46 crore.