Why Infosys stock could surge in near term - Morgan Stanley

India's technology giant Infosys (NS:INFY) Limited is scheduled to announce its fourth-quarter results for fiscal 2024 and provide revenue guidance for fiscal 2025 on April 18, after market close. The announcement is set to significantly influence Infosys stock, according to a report by Morgan Stanley.

The research firm's analysis presents three scenarios for Infosys following the announcement. The most likely scenario, given a 60% probability, suggests Infosys will guide for 3-6% year-over-year revenue growth in constant currency terms and set an EBIT margin range of 20-22%. This outlook is based on strong deal wins in fiscal 2024 and an expected recovery in the second half of the year.

In a less optimistic scenario, assigned a 20% probability, Infosys might project revenue growth of only 2-5%. This outlook would reflect ongoing constraints on discretionary spending and difficulties in achieving revenue from finalized deals. On a brighter note, with the same 20% likelihood, the company could expect a revenue growth of 4-7%, banking on an upswing in discretionary spending during the latter part of fiscal 2025. 

These scenarios imply varying impacts on Infosys stock price. The base case scenario could lead to a 4% appreciation, aligning with positive market reactions to the company’s steady performance. The pessimistic outlook might result in a 3% decline in stock value, while the optimistic scenario could boost the stock price by 11%.

Morgan Stanley has reiterated its Overweight rating on Infosys, with a price target of Rs 1750, indicating a 17% upside from its last close of Rs 1498.05 on March 28.

The firm cites Infosys's strong execution and innovative service offerings as the basis for its positive stance but warns of risks including geopolitical tensions, regulatory changes, and currency fluctuations that could impact performance.

Infosys reported consolidated net profit for the quarter ending in December at Rs 6,106 crore, down 7% from Rs 6,586 crore the previous year. The company's revenue from operations for the third quarter saw a modest increase of 1% to Rs 38,821 crore, up from Rs 38,318 crore in the year-ago quarter.