Infosys shares plunge 6% despite beating Q3 estimates, analysts raise concerns

Infosys shares dropped nearly 6% despite beating Q3 estimates, raising concerns about earnings quality

Shares of India's No.2 IT company Infosys fell nearly 6% on Friday despite beating third-quarter result estimates, as analysts raised concerns about the quality of earnings.

Despite exceeding third-quarter result projections, shares of India's No. 2 IT company, Infosys, dropped about 6% on Friday as analysts expressed scepticism about the calibre of results. (AFP/Idrees MOHAMMED)

Infosys dragged the IT sector down by 2.6% on the day, with eight of the 10 constituents trading in the red. The stock was on track for its worst day in nearly one-and-a-half years.

The company's revenue growth was driven by a higher component of "third-party items" in its deal pipeline, "which drove concerns around the quality of the beat and raise", Morgan Stanley analysts said in a note.

"Given that the commentary on small deals pipeline is not showing any meaningful signs of inflection, we now assume the (industry-wide) recovery to be more gradual than before," the analysts said.

Infosys fell 5.8% in Mumbai on Friday, following a near 6% drop overnight in its U.S.-listed shares.

(Reporting by Indranil Sarkar, Manvi Pant and Anuran Sadhu in Bengaluru; Editing by Mrigank Dhaniwala)