Dec
26Why Morgan Stanley is bearish on Infosys stock?
Filed Under (Stock Observations) by Deepak Singh on 26-12-2009
Infosys had an annual analyst day earlier in December. Post that meet, Morgan Stanley has come out with bearish view on the stock (not on the company). Their 12-month price target is 1775 and here’s why?
Street is expecting steep EPS growth from Infosys over next 2-3 years; and it will be difficult for Infosys to match that expectation
Stretched expectations may lead to stock under performance versus the market from current levels over the coming quarters. Most of the good news is priced in.
Morgan Stanley thinks FY11 EPS growth over FY10 will be 9-10%, as against market expectations of 22-24%. This may lead to PE compression and downside pressure on stock prices. With FY11 EPS estimate of Rs. 113.4, a multiple of 15-16x is more reasonable.
Let us look at technical picture of the stock to understand support and resistance.
Infosys Weekly Chart
No doubt, chart looks quite stretched. Here are some observations
- Infosys is trading at new all time high.
- The stock’s earlier high was 2400 it made in Feb 2007.
- In near term, stock may find buyers at 2400. With many institutions like CLSA, and Deutsche Bank forecasting a price target of 2800 - the stock may get to that level if it succeeds in holding 2400
- If stock slips below 2400, it’s likely that stock may slide to 50 week ma/2000 levels.
- The 200 dma on the stock right now is 1928.
Source: ChartAlert [www.chartalert.com]
My View
Stock Performance has always been a function of expectation. Right now the danger with Infosys stock is that surprise may come more on the downside than upside. The stock is trading at expensive valuations and has little margin of safety to absorb even small bad news. Yes, nobody is even talking about stronger rupee.
I hope you found this article useful. Do share your views. As always, please note this is not a trading recommendation.
Disclaimer - The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writer
Thanks Deepak for giving your view on infy.
I know this is not correct place to ask , but can u guide/ give your perspective on Nifty 200 Week moving average from 2000 till latest, so that we can know that markets go extreme both ways up and down , and ppl can use this moving average to make money?
please help with chart (year 2000 till latest and also tell at what position is nifty current)
Srry to have asked a lot from you
The 200 week ma right now is 3899.
Will not the 50 week MA come down instead going up when the price comes down and further more , the MA line you indicated has not acted as support level in the past
Infosys bang on 2800 tgt. Great Deepak for your views.
Suren from Bangalore