Infosys shares fall 9% as profit miss stokes growth normalisation fears

Shares of India’s Infosys Ltd (INFY.NS) fell 9% on Monday to hit an eight-month low after the company last week posted quarterly profit below expectations, raising fears of growth normalisation in the sector after a pandemic-led boom.

After market hours on Wednesday, the country’s No.2 software services firm posted a consolidated net profit of 56.86 billion rupees ($744.05 million) for the quarter ended March 31, missing analysts’ expectations of 59.80 billion rupees.

Higher investments in areas from cloud computing to cyber security during the pandemic have propped up demand for services provided by Infosys and rivals Tata Consultancy Services Ltd (TCS.NS) and Wipro Ltd (WIPR.NS), helping the companies rake in billions of dollars in contracts.

However, margins have come under pressure as the rise in demand led to higher attrition, wage hikes to retain talent, and higher sub-contract costs.

Infosys’ operating margin fell 3% year-on-year to 21.5% in the March quarter, while voluntary attrition at the IT services business surged to 27.7% in the last 12 months from 10.9% a year ago.

The company projected operating margin of 21%-23% for 2022-23 and revenue growth of 13%-15% on the back of a robust deal environment, while flagging discussions with clients on pricing.

“The stagflationary macro-economic situation building up in the western world would affect tech spending in 2HFY23/24,” Nirmal Bang analysts said in a note.

“Pricing commentary seems cautious and is probably affected by competitive intensity. We fear that it would be too late to broach the topic in late 2022 when a material economic slowdown would impact customers.”

Infosys shares, which have risen more than 120% in the last two years, fell 9.1% on Monday in their biggest intraday drop since March 23, 2020.

The Nifty IT services index (.NIFTYIT) slumped 4.7%, taking its year-to-date fall to 15.4% after a 60% jump last year.

($1 = 76.4200 Indian rupees)

Reporting by Nallur Sethuraman in Bengaluru; Editing by Subhranshu Sahu

This article was originally published by Reuters.