Market players to wait for Vishal Sikka to deliver before re-rating Infosys

Jun 14 2014, 11:50 IST
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Infosys shares have remained flat in two trading sessions after Vishal Sikka was appointed as the next MD and CEO and closed at Rs 3,181 on Friday. Infosys shares have remained flat in two trading sessions after Vishal Sikka was appointed as the next MD and CEO and closed at Rs 3,181 on Friday.
SummaryThere are concerns that Infosys' path to recovery could turn out to be a long-drawn process.

Infosys shares have remained flat in the two trading sessions after Vishal Sikka was appointed as the next MD and CEO and closed at Rs 3,181 on Friday with a gain of 0.1 per cent over Wednesday. Market players, however, prefer to wait and see him deliver before rushing in to re-rate the firm.

Although, market watchers see Sikka’s appointment as a positive development as his experience and strong client relationships globally may benefit Infosys, they also see growth as the biggest factor before they can go ahead and rate the stock at a premium.

“We are not re-rating the stock on this development alone as growth has to come back. Infosys has not been growing in line with its peers,” said Pankaj Pandey, head of research at ICICI Securities.

There are others who have concerns over Sikka’s ability to run a services company and also see if there is stability at the top management level, which has been an issue with the company in the near past.

“His strong client relationships can help Infosys win business with new and old customers and improve revenue growth. However, with his products background, we are concerned about his ability to run a services company,” said a research report from Deutsche Bank.

There are concerns that the path to recovery could turn out to be a long-drawn process. The Deutsche Bank report adds, “Investors will now seek direction and clarifications from the new management on addressing issues of high attrition, loss of business and below par presence and acceptance in key growth market continental Europe.”

But some are willing to give a ‘Buy’ recommendation following the appointment.

Prabhudas Lilladher, a brokerage firm, endorsed the fact that Sikka’s access to leaders of many global companies will be beneficial for Infosys’ graduation to the next level. While some are raising concerns about his performance at a services company, the brokerage firm said that the gap between software and services shrinking.

“We see that the convergence of technologies has already blurred the thin line between software and services. Hence, we believe, selling IT services should not be any different from selling software products,” said the report by Prabhudas Lilladher. “We see this as a positive development that clears near-term uncertainties. Infosys has made an unorthodox choice with respect to the CEO which separates it from its peers.”

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