Infosys shares dropped nearly 5% on January 17, 2025, following its Q3 FY25 earnings report. Despite reporting an 11% year-on-year (YoY) rise in net profit, the stock declined sharply on both Indian and US exchanges.
The company’s American Depositary Receipts (ADR) on the New York Stock Exchange (NYSE) fell 5.77% to $21.57, influencing the decline in Indian markets. Investors and analysts reacted negatively, citing revenue concerns and expected seasonal weakness in the coming quarter.
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Infosys Q3 FY25 results: Key highlights
Infosys, India’s second-largest IT services provider, reported its earnings for the quarter ended December 2024 after market hours on January 16. The company’s financials showed a solid performance but fell short of investor expectations, leading to a sharp stock decline.
Infosys Q3 FY25 financial summary
| Metric | Q3 FY25 | Q2 FY25 | QoQ Change | Q3 FY24 | YoY Change |
| Net Profit | ₹6,806 crore | ₹6,506 crore | +4.6% | ₹6,131 crore | +11% |
| Revenue | ₹41,764 crore | ₹40,986 crore | +2% | ₹38,821 crore | +7.6% |
| EBIT | ₹8,912 crore | ₹8,646 crore | +3% | ₹7,956 crore | +12% |
| EBIT Margin | 21.3% | 21.1% | +20 bps | 20.5% | +80 bps |
| USD Revenue | $4,939 million | $4,882 million | +1.2% | $4,648 million | +6.3% |
| Total Contract Value (TCV) | $2.5 billion | $2.4 billion | +4.2% | $3.2 billion | -22% |
Revenue growth guidance revised upwards
Infosys increased its constant currency (CC) revenue growth guidance for FY25 to 4.5%-5%, up from its previous guidance of 3.75%-4.5%. However, the company retained its operating margin guidance at 20%-22%.
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Why did Infosys shares drop?
1. Infosys ADR tumble on NYSE
Infosys ADRs fell 5.77% on the NYSE post-earnings announcement, setting the tone for Friday’s decline in Indian markets. This suggests that foreign investors were not entirely convinced by the results.
2. Concerns over Q4 growth slowdown
Despite the revised revenue guidance, the company’s Q4 expectations imply a sequential revenue decline of 2.5% to 0.6%, primarily due to seasonality, fewer working days, and weaker discretionary spending. This has dampened investor sentiment.
3. Lower-than-expected deal wins
Total contract value (TCV) for large deals stood at $2.5 billion, marginally up from the previous quarter’s $2.4 billion, but significantly lower than the $3.2 billion TCV reported in Q3FY24. Analysts see this as a sign of slower deal momentum.
4. Wage hikes to impact margins
Infosys announced a phased salary hike cycle, which could impact EBIT margins in the upcoming quarters, leading to concerns about future profitability.
5. Sector-wide weakness in IT stocks
Infosys’ decline also coincided with broader weakness in IT stocks, with Wipro ADRs falling 4% in the US market. The industry faces macroeconomic uncertainties, impacting investor confidence.
What do analysts say?
Mixed reactions from brokerages
Analysts remain divided on Infosys’ prospects. While most retain a ‘Buy’ rating, some highlight concerns over revenue growth and deal momentum.
| Brokerage | Rating | Target Price (₹) | Key Takeaway |
| Emkay Global | Buy | 2,150 | Expect gradual recovery, strong BFSI growth |
| Nuvama | Buy | 2,350 | Upgraded guidance positive, but near-term headwinds exist |
| Morgan Stanley | Overweight | 2,150 | Revenue growth below estimates, cautious on Q4 |
| BofA | Buy | 2,150 | Discretionary demand recovery in BFSI, retail sectors |
| Macquarie | Neutral | 1,900 | Weak large deal bookings, uncertain near-term outlook |
What should investors do?
1. Short-term traders should remain cautious
Given the seasonal weakness and muted deal momentum, Infosys shares may remain volatile in the near term. Traders should be cautious and track Q4 earnings closely.
2. Long-term investors can consider dips
With strong fundamentals, rising cash flow, and steady margins, Infosys remains a solid long-term investment. The recent dip may be an opportunity for investors looking to add Infosys to their portfolio.
3. Keep an eye on deal wins and global IT spending
Investors should watch Infosys’ deal pipeline and global IT spending trends. Any signs of acceleration in client spending or new large deal wins could be a positive trigger for the stock.
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Conclusion
Infosys reported strong Q3FY25 earnings, but concerns over Q4 growth, deal momentum, and wage hikes triggered a 5% decline in share price. The ADR drop further amplified selling pressure in the Indian market. While short-term headwinds persist, long-term investors could consider buying on dips, given Infosys’ strong fundamentals and improving revenue outlook.
