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Wednesday, July 14, 2010

Should you buy stocks of Infosys post Q1 FY11 results?

Infosys, the second largest IT exporter from India, announced their Q1 FY 2011 results. The company’s net profit for the first quarter of FY11 slumped a surprising 7.98% The stock price has slipped by Rs.100 (3.44%) in markets. Should you buy stocks of Infosys now?

The net profit came in at Rs 1,488 crore as against Rs 1,617 crore, on quarter-on-quarter basis (QoQ). However its revenues jumped to Rs 6,198 crore from Rs 5,944 crore, a jump of 4.27%.

Infosys has increased its dollar revenue guidance for entire FY11 to a growth of 21% on the higher end of the band from the earlier estimate in April of 18%. This gives a strong signal of demand recovery for company services from it's clients. Infy’s top five and the top 25 clients grew faster than it's rest of the customer base. This reflects revival in IT spending of larger US companies. Infy also bagged eight bigger deals — worth more than $100 million each.

The stock price of Infy at present is at Rs 2792. The stock is fully valued at this price. If it trades below Rs 2760-2770 for a day or two, it could turn bearish and go up to Rs 2600 or worst ~ Rs 2550-2500. These levels would be the best levels to buy stocks of Infy as these are relatively cheaper levels in terms of valuations.

It is definitely not a strong buy right now. One may start accumulating at lower levels than today's. Long term stock price target, looking at future guidance, could be around Rs 3100.

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