Infosys Ltd reported an impressive set of numbers of Friday, sending not just its own stock, but also those of other IT companies such as Tata Consultancy Services Ltd, HCL Technologies Ltd, Wipro Ltd also up by 1-2%. But a closer look reveals that Infosys’ performance does not hold very bullish outlook for the rest of the stocks.
The reason lies in the way Infosys beat analysts expecations. It reported a volume growth of just 0.7% and a US dollar revenue growth of 1.7%, below the 2% growth most analysts had expected. Only the margins and profit was well clear of estimates.
A deeper analysis of where Infosys got its revenue growth reveals that it was largely due to the depreciation of various currencies such as the Euro, the Rupee and the Pound. As a result, Infosys, which guides and reports its primary revenue numbers in US dollars, got an artificial boost, without which revenue growth would have been in 1%.
The quarter saw a quarter on quarter decline in revenue from the US market – the biggest.
Of course, this is not to say that the same Europe factor would not boost revenue at TCS and HCL Tech, both of which will report results on Thursday. It would. But most of the positive feeling that investors got from the Infosys results was on account of the strong gain in margins due to the company’s ongoing cost cutting measures.
But would these measures impact other companies’ profits? Unlikely.
So investors would need to temper their expectations from other IT stocks to prevent a repeat of last quarter’s debacle involving a huge run-up in the stocks of TCS, Wipro and HCL Tech after Infosys results. All these stocks fell on the day their respective results were announced.