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COMMENT: Crystal-ball gazing: what's the Infosys stock saying?

13 February, 2017 10:44 AM
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COMMENT: Crystal-ball gazing: what's the Infosys stock saying?

Not only has market largely ignored the brawl, reports suggest that long-term investor Oppenheimer Developing Markets Fund, which holds a 2.13-percent stake in the company, has lauded CEO Vishal Sikka’s leadership.

Amid the ongoing verbal duel between the founders led by NR Narayana Murthy and the board at Infosys , the behaviour of the company’s shares is intriguing. The stock has risen by close to 2.8 percent since the news of the conflict broke, outperforming the Nifty, which rose a meagre 0.3 percent. This is in sharp contrast to the behaviour of Tata group stocks that exhibited substantial stress during an unseemly board battle at holding company Tata Sons.

Not only has market largely ignored the brawl, reports suggest that long-term investor Oppenheimer Developing Markets Fund, which holds a 2.13-percent stake in the company, has lauded CEO Vishal Sikka’s leadership.

Another piece in the puzzle is Sikka’s compensation structure. Of the mind-boggling package of USD 11 million – 18 percent is stock compensation and 45.5 percent is performance based equity and stock options. Hence, over 63 percent of his pay is linked to where Infosys and stock price are headed. As the old adage goes: “The market knows best”, it would be amateurish to ignore the stock signals as just another rally in IT stocks.

Sikka, a former chief technology officer and member of the board at German software company SAP SE, had a defined mandate: To ‘transform’ Infosys to be ‘future ready’. He lost no time in bringing innovations powered by automation, artificial intelligence, products and platforms.

Some Infosys watchers feel that in areas like BPO (business process outsourcing), infrastructure, application development and maintenance, Infosys has automated a lot of tasks and is in a much better shape than most Indian peers. However, IT services buyers say Infosys has not changed much in the actual marketplace, except in relatively small pockets.

The IT landscape is beset with multiple structural headwinds over and above the short-term cyclical ones. Commoditisation and cannibalisation of the core/legacy resulting in price and volume pressures, rising presence of the in-house (captive) centres of the client parent, perceived lack of consulting capability of India IT (relative to MNCs and also in absolute terms) and inadequate localisation to exploit the digital wave, inability/slowness to make the investments for winning in digital are some of the deep-rooted challenges plaguing the industry.

Infosys has admitted to underpreparedness in areas like analytics, consulting-led approach and digital and is looking to grow inorganically by buying stakes in start-ups focused on these disruptive technologies.

With a cash chest of close to Rs 34,000 crore this doesn’t look impossible and time and again the management has reiterated its inorganic strategy.

The Infosys CEO has reiterated a rather ambitious goal for 2020 and a part of his remuneration is linked to the same.

As the figures suggest, this is a tall task from where it stands today and couple of acquisitions may not be enough.

Is there a fear – or hope, depending on where you stand -- of Infosys being acquired by a large tech giant?

Sikka has spent close to 11 years in SAP and he has got quite a few of his former colleagues to Infosys. The enterprise software giant with annual revenue of close to Euro 22 billion and market cap of USD 112 billion (market cap of Infosys USD 33 billion), is a product company. While the synergy doesn’t look obvious, in the changing and challenging landscape, one cannot rule out future match-making involving the best of the developing and the developed world.

Also read: TCS gave negative returns 3 out of 4 times post quarterly results. How to trade ahead of Q4?

Source: moneycontrol.com

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