If Infosys slip 15-20%, then it is the time to buy it

If Infosys stock prices from the 1,400 odd level falls 15-20%, then irrespective of whatever the news flow is, you buy because it is built inthe worst negative news. That is how we have to play these large IT stocks.

Infosys Limited is an Indian multinational information technology company that provides business consulting, information technology and outsourcing services. The company was founded in Pune and is headquartered in Bangalore. Infosys is the 2nd-largest Indian IT company, after Tata Consultancy Services, by 2020 revenue figures, and the 602nd largest public company in the world, according to the Forbes Global 2000 ranking.

On 24 August 2021, Infosys became the fourth Indian company to reach $100 billion in market capitalization.

• The market and investors are disappointed as Infosys expects slower revenue growth of 4-7% for FY24.
• CIRCUIT BREAKER !!! 10% Lower circuit in Pre-market opening
• Infosys Ltd 35% down from its All Time High.
• Shares of Infosys tanked nearly 15 per cent in morning trade, wiping out Rs 73,060.65 crore from its market valuation.

Why Infosys Ltd shares falling?

Infosys Ltd. reported a sharp sequential revenue decline of 3.2 per cent due to aggressive cuts to discretionary programs and a general slowdown in tech spending on account of macro pressure and uncertainty and a onetime revenue impact of 1 per cent from project cancellations.

This is the first time that the management of IT companies have come out and admitted that there is a problem. We spoke about this with you about a year ago. The markets had started punishing these stocks six, eight months ago. Are we at that turn where you buy the bad news from the management or we are in for a long winter?

I do not think the winter will be long but it will last for some more time. People need to recognize that it is at least a one or two quarter kind of phenomena because IT spending and especially the discretionary side has a lot to do with sentiments. All of us think that companies and the managements take logical decisions but many of their decisions are also run by their perception of what is going to happen. Now that perception is becoming more negative than what might actually play out. So to that extent, the management of these IT companies are recognizing it now. I was saying for a long time that they need to first recognize the fact and that is when the stocks will move to levels which can become buy levels. I think that is where we are.

There could be more cuts in earnings going forward after the first quarter, but that will be it. So it becomes key when you want to buy these stocks. If Infosys from the 1,400 odd level falls 15-20%, then irrespective of whatever the news flow is, you buy because it is built in the worst negative news. That is how we have to play these large IT stocks because one cannot be permanently negative on these companies because they have no debt, they are huge cash generating businesses and they do frequent buybacks and pay out large dividends.

But right now, the scenario is negative and from whatever these managements are talking, things could become a bit more worse.

Let us understand that in terms of a level. Brokerages have come out with knives and they are slashing the price targets down. A year ago, nobody had a downgrade on IT, today everybody has a downgrade on IT. Is it too late to sell now? You may not buy, you may say, okay, 5%, 10%, the stock may fall but when the turn comes, it is going to be equally sharp.

Yes, for #InfosysQ4FY23, I will say that if it opens 10% lower as the ADR indicated, I do not think long term investors should sell. From that 10% down, maybe there could be another 10% down, but I do not see it fallingmore beyond that. So people who want to buy should wait. There are many other sectors which are giving better opportunities at this stage. For those who are holding and were reluctant to sell right from 1,800, 1,900, whatever top it reached, till 1,200. It makes no sense for them to sell at 1200.

DLF made record sales in the luxury market a month ago. We have got record growth coming from Kolte-Patil. If I speak to Prestige, they are also using the word record booking and record guidance. Where is the growth coming from? We are talking about a slowdown, job losses, impact of higher interest rates but real estate companies are just getting it right.

It is a K-shaped economy where luxury cars, four-wheelers are getting sold more, two-wheelers are not getting sold; consumer durables are suffering but luxury brand sales in India are moving to all time highs. This luxury sales phenomena is also a global phenomena. That is a feature of the K-shaped kind of economy. Now, real estate is a tough investment because a lot of the pre-sales need to get converted into cash flows and actual deliveries. A lot of times, we have seen in the past that that does not really play out as per script.

Since you have specifically asked about DLF, they are pretty well placed. That is a company which has been very conservative over the last few years and managed the balance sheet etc. Many of the newprojects, like you said, and like the management of the company were talking about, are getting sold out very fast. So I would think that there is opportunity in a few stocks and on top of that could be DLF.

What do you do with HDFC Bank right now because the stock is already at a 52-week high. It gained about 7-9% in just the last one month or so. What happens next, considering that the Street expectations were a little elevated and on this kind of a broad base, HDFC Bank has managed to meet the estimates now?

There were no negatives in the results. People are looking for negatives. There were no negatives. Credit growth figures had come out earlier. They could deliver strongly on the net interest and all parameters are good. The only issue now is what happens post merger with HDFC when they will have to raise significant additional deposits and CASA deposits? You cannot grow like that. They are steady growth phenomena, which comes through long-term customer acquisition and so most of it will be through fixed deposits at higher rates that will hit their net interest margins in the short run.