Infosys Ltd, a leading IT services company, witnessed a 2% dip in its shares following the termination of a significant Memorandum of Understanding (MoU) with an undisclosed global company. The deal, valued at $1.5 billion, focused on artificial intelligence (AI) solutions and was signed in September 2023 for a 15-year commitment.
The announcement sent shockwaves through the stock market, with Infosys opening at ₹1,535 per share, down from the previous closing price of ₹1,562.90 on the National Stock Exchange (NSE). The share price hit an intraday low of ₹1,523, resulting in a market cap of ₹6.40 lakh crore. The company found itself among the top losers in the Nifty 50 Index.
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Leadership Changes
The termination of the deal coincides with the resignation of CFO Nilanjan Roy, effective April 1, 2024. Jayesh Sanghrajka, currently serving as the executive vice president and deputy CFO, is set to replace Roy. Additionally, two of Infosys’ presidents, Mohit Joshi and Ravi Kumar, have resigned from their roles, with Joshi now leading Tech Mahindra and Kumar leading Cognizant.
Guidance Revisions and Business Challenges
Infosys has faced challenges throughout the ongoing fiscal year, evident in its three revisions to revenue growth guidance. Initially projecting a 4-7% growth for FY24, the company later adjusted its guidance to a range of 1-3.5%. Subsequently, the upper end of the revenue growth guidance was further reduced to 2.5% in October.
Artificial Intelligence Initiatives and European Market Trends
In May, Infosys launched Topaz, an AI-first set of services utilizing generative artificial intelligence (GenAI) technologies. Recent research from Infosys’ arm highlighted the cautious approach of European companies in GenAI investments compared to North America, primarily due to regulatory concerns.
Details of the Terminated Deal
The $1.5 billion deal, focused on artificial intelligence solutions, was initiated with an undisclosed global company. The Memorandum of Understanding (MoU), signed on September 14, 2023, aimed at providing enhanced digital experiences, modernization, and business operations services. The deal was planned as a 15-year commitment, but the global company elected to terminate the MoU, signalling a setback for Infosys.
Market Impact and Future Outlook
Following the announcement of the terminated deal, Infosys shares experienced a nearly 3% decline in early trade on December 26. The loss in share price also affected the Nifty IT index, pulling it down by almost 1%. Despite these challenges, Infosys is set to announce its Q3FY24 financial results on January 11, with a board of directors meeting scheduled for January 10.
Financial Performance and Industry Trends
In Q2FY24, Infosys reported a 3% YoY rise in net profit to Rs 6,212 crore, with consolidated revenue reaching Rs 38,994 crore, up by approximately 7% from the previous fiscal. The company’s operating margin for the same period increased by 40 basis points to 21.2%.
Over the last six months, Infosys shares gained over 22.85%, and its YTD performance reflects a 2.4% increase. The broader context of increased Foreign Institutional Investor (FII) inflows and the Federal Reserve chairman’s dovish stance on rate cuts has contributed to an uptick in IT stocks in recent weeks.
The termination of the $1.5 billion deal comes at a time when global IT and tech companies are grappling with uncertainties and challenges. This setback, coupled with leadership changes and revised guidance, places Infosys in a pivotal position as it navigates the evolving landscape of the technology industry.
The termination of the $1.5 billion deal adds a layer of uncertainty to Infosys’ outlook, raising questions about its ability to navigate the evolving landscape of the IT industry. Investors will keenly await the Q3FY24 results for insights into how the company plans to address these challenges and regain momentum in the market.
