Analysts are not expecting too much from Infosys, given that the company has disappointed in the last few quarters. Revenues are likely to remain muted and investors would look for guidance, which is the most important part of the Infosys results.
In the last quarter revenue rose 2.5% and net profit rose 3.5% sequentially, which was way below analysts expectations, making it difficult for Infosys to meet its own revenue guidance of 5%.
Many analysts are of the opinion that economic greenshoots in the US have begun emerging, which could benefit Infosys. In fact, they believe that Infosys could be an excellent contra play, given that stocks like Wipro and HCL have already rallied.
All would depend on what the management says after the results, particularly on client spends and budget allocations. The problems with Infosys is that the company depends a lot on discretionary spends, which are spends that a client can afford to postpone. Margin guidance from the company would also be important. Proposed salary hikes would not go down well with the markets, as it would compress margins.
Last quarter the margins of the company dropped by 160 basis points and the same was attributed to subcontracting costs, mainly contracts related to hiring of specific skills. This quarter margins are expected to remain steady.
The Infosys stock has been amongst the worst performer from index stocks and gave negative returns in 2012, against the Sensex gains of +26 per cent.
The stock has been gaining ground since the beginning of the year on hopes that the worst may be behind for the company and things could only get better. In the last two quarters after the results, the stock plunged, investors hope that this time round, the performance is much better.A slightly better revenue and guidance would go down well with the markets.