Infosys shares tumble to 9-month low after BG Srinivas quits; analysts don’t see a turnaround soon

fe Bureau Posted online: Friday, May 30, 2014 at 0000 hrs
Mumbai, Bangalore : Infosys shares fell to a nine-month low of Rs 2,924.30 on Thursday after BG Srinivas, the company’s president, resigned from his post. The scrip ended 7.81% lower on the BSE, posting its biggest single-day fall in more than two months.

In an exchange note after market hours on Wednesday, Infosys had said the board had accepted BG Srinivas’ resignation and decided to relieve him of his responsibilities from June 10, 2014. BG Srinivas was one of the internal candidates to have emerged as the frontrunner for the top job after SD Shibulal’s exit in March 2015.

Infosys shares have declined more than 16% year to date against the Sensex’s 14.47% gain over the same period.

Experts believe the next CEO is likely to be an external candidate.

“It looks like the next CEO in all likelihood will be an external candidate. We think an early announcement about the next CEO would be a key catalyst to reducing uncertainty in the stock,” said Nomura in its recent report.

But analysts also feel a turnaround is unlikely in coming months as the impact of Murthy's presence and the subsequent restructuring may not be sufficient to guide the company to its halcyon days.

“We expect the focus to shift to internal matters and finalising the new CEO will take priority, driving more instability in the near term. We retain our expectation of gradual recovery at Infosys, beyond the near-term challenges,” said brokerage house Motilal Oswal in a report.

The IT pack was under pressure on Thursday, with Tech Mahindra (-0.49%), Wipro (-2.63%), HCL Technologies (-2.55%) and Hexaware Technologies (-1.90%) all ending in the red. The BSE IT index closed 3.44% lower at 8,419 points.

Experts believe Srinivas’ resignation will put the stock under pressure.

“We think this development is negative for the stock. Infosys has seen more than ten high profile and senior management exits since NR Narayana Murthy rejoined as executive chairman about a year ago,” Nomura added.

A section of analysts believes a quick decision on the next CEO will allay investors’ concerns.

“We believe the CEO selection process could lead to further churn within the company, which would likely weigh on the stock in the near term,” Barclays said in a report. “A speedy decision for selecting the new CEO would be the first positive step to allay investor concerns on succession,” it added.

On the other hand, some feel an internal candidate may trigger a few more exits like Srinivas, who is believed to be irked at some of the executives reporting to him being considered for the top job.

“However, there would be no change in the current culture and modus operandi of the company, which remains an integral part of the IT services business (in case of an internal CEO),” brokerage house Prabhudas Lilladher said in a report.

"We expect Infosys to follow in the footsteps of TCS and Cognizant and give the CEO role to a young leader (mid 40s) with strong credentials, implying a longer tenure that will help build long-term strategy,” the Lilladher report said.