Brokerage firm Prabhudas Lilladher has downgraded Infosys to 'Accumulate' and reduced its price target to Rs 1,200, citing softer volume growth and margin pressure. This follows the company's second-quarter earnings, where it missed EBIT margin estimates and lowered its FY27 revenue guidance to 1-2%. Investors are watching how the company manages rising wage costs and client spending caution in the current IT services environment.
Brokerage firm Prabhudas Lilladher has revised its rating for Infosys to 'Accumulate' and lowered its price target to Rs 1,200 from the previous Rs 1,300. This adjustment comes after the company reported second-quarter revenue growth of 1.2% in constant currency terms, falling short of expectations for more robust expansion.
The downgrade is primarily driven by concerns over volume growth and pricing pressure within the IT services sector. According to the brokerage, clients are extending their decision-making cycles, which is impacting discretionary spending, particularly in the retail and technology segments. As companies globally re-evaluate their technology budgets, the transition toward AI-led productivity is creating added friction for traditional service pricing structures.
Infosys reported an EBIT margin of 21.0% for the second quarter, missing the 21.5% mark expected by analysts. Looking ahead, the company has lowered its FY27 constant currency revenue growth guidance to a range of 1% to 2%. The brokerage expects that upcoming wage hikes and seasonal furloughs will continue to weigh on profitability, leading to adjusted EBIT margin estimates for FY27 through FY29 in the range of 20.8% to 21.3%.
While the demand environment remains constrained, the company maintains a large deal pipeline, including a recently signed US$2 billion mega-deal. This contract is expected to contribute to revenue visibility starting in the fourth quarter of FY27. However, the brokerage noted that valuations currently appear stretched relative to the near-term demand challenges.
For investors, the primary area of focus will be the company’s ability to protect profit margins amidst rising operational costs. Additionally, the execution timeline of the large deal pipeline will be a key factor in determining whether the company can meet its revised growth guidance in the coming quarters. Sector-wide trends, such as shifting client priorities and cost-optimization efforts, remain a critical backdrop for assessing the performance of major IT services firms like Infosys.