Infosys shares get broker upgrades, not all convinced on turnaround
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A handful of brokers upgraded their views on Indian IT outsourcer Infosys Ltd after better-than-expected earnings on Friday spurred a nearly 17 percent rally in its shares, although some company watchers remain unconvinced it has turned the corner after a string of disappointing quarters.
Infosys shares extended their rally on Monday, gaining more than 4 percent, as Barclays raised its rating on the stock to "overweight" from "equal weight" and JPMorgan upgraded it to "overweight" from "neutral."
"It is enough to say that the worst is behind them, but whether they will sustain this kind of sequential growth remains to be seen," Phani Sekhar, a fund manager with Angel Broking Ltd, told Reuters.
A genuine recovery in IT spending by clients in the United States, which accounts for more than 60 percent of Infosys' revenue, holds the key to how quickly its "Infosys 3.0" strategy pans out, he said.Infosys' strategy shift, started about two years ago and aimed at winning orders to solve business problems with consulting and technology rather than commoditised IT services, has been taking longer than planned to gain traction as clients delayed spending decisions due to an uncertain economy.
"The first test will come in the first quarter of financial year 2014. I say that because the U.S. at this point is giving very mixed signals," Sekhar said.The 2014 financial year starts in April.
Ambit Capital analyst Ankur Rudra said the positive December quarter surprise was driven by factors including substantial growth in back-office support services, higher sales of its Finacle banking product and growth in Europe. The company still needs to show growth in core services such as software applications development and maintenance, he said.
Such services, including software testing and managing computer servers, still account for more than half of Infosys' revenues. These increasingly commoditised areas are also where the company faces cut-throat competition and in the last two
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