Wednesday, June 4, 2014

Tough Times Ahead for Infosys


Exactly 1 year ago, on 3rd June 2013, I published an article titled "Can Mr Murthy work his magic with Infosys this time too?". Infosys, arguably India's most well-known IT company was going through a tough time and its founder Mr. Narayanamurthy had come back to help revive the giant from the downward slope. I was pretty optimistic about this move at that time and the article would've reflected my views heavily. Investors liked this move and the share price appreciated by over 30% between June last year and April this year. However, over the past 1 year, things have changed drastically. A week ago, one of the people who were considered the top contenders for the CEO Post resigned. This was one among the many high-profile exits from Infy and the stock market did not react kindly. The stock price tanked close to 10% in just 2 days and even now it is extremely volatile...

Before We Start: A number of top executives have resigned from Infosys over the past 1 year. Most of these people would've been prime candidates for the CEO Post of Infosys but sadly all of them have left for some reason or the other. How Infosys recovers from this shock is entirely upto Mr. NRN. The purpose of this article is to highlight the key exits that happened and to give you an idea of what we can expect from Infy as a company & from its stock as well from an Investors Perspective...


The List of Top Exits:


A total of 9 top executives from India alone have resigned over the past 1 year from Infosys. In fact, this has actually come as excellent news for IT Organizations worldwide. Great Leaders are extremely hard to find and when that happens, do you think top execs from a company like Infosys would be out in the market for long? Almost all of them have taken up high profile roles with other companies. See the table below:

Note: N/A refers to - Not Available at the moment. I couldnt find info on the internet about where they are heading to.



The BILLION DOLLAR QUESTION - WHY???


One or two top execs leaving the company is something all organizations go through however, 9 top guys in one year? That brings us to the billion dollar question - Why did all of them resign and that too within such a short span of time? This is something only those people who resigned can answer accurately.

I have a couple of theories though:

Theory 1: Almost all these guys were in the running to the elusive CEO Post of Infosys and trust me, each one of them had the credentials to make a viable bid to take over that role. However, when things did not work out the way they wanted, maybe they felt it was time to move on...

Theory 2: Over the past 2 years, Infosys as a company has implemented a new Management Strategy. Maybe this management rejig backfired and thats why these guys left...

Again, I might be wrong here because these are just theories. But, with so many top level execs leaving the company in such a short span of time, there has to be some compelling reason.


The Search for the Next CEO


As of now, Infosys as an organization is reeling from tremendous pressure. Attrition is at an all time high, top execs have left the company and even Mr. NRN's magic seems to be fading away. The last ditch hope for the company is the appointment of the new CEO who is going to take over the company. News websites claim that the next person to be appointed as the CEO could be the first person outside of the founding members to take up this role...


What Next - For the Company Stock?


Presently the Infosys stock is trading at around Rs. 3000/- per share which is close to 20% off its high of Rs. 3832/- per share on March 6th, 2014. The fact that, the price of the stock has actually come down by 20% over the past 2 months when the stock market has gone up to never-before heights clearly outlines the market sentiment. People are scared and there is not much visibility about the the future prospects of the company.

So, the volatility is going to continue. If this new CEO is a polarizing figure who can revive the investor confidence, the stock price will immediately go-up. However, if the new name doesnt live up to market expectations, the price of the stock could go down even further.

So, What To-Do?


Dips in stock price is usually a good opportunity for long-term investors esp. for companys that have a great the track record. But, a clear decision on whether the stock price will go up or down cannot be taken until this new CEO is appointed. So, personally I would recommend the Wait and Watch approach. If you are currently holding Infy shares and are sitting on a Profit, go ahead and sell a portion of your investments and then hold on to the rest. If you feel Infy as a company is extraordinary and this current dip is an amazing buy opportunity, thats fine. Just remember to distribute your purchase across at least 4-5 trading sessions so that you can average out your investment price.

Happy Investing!!!




Disclaimer: All the info in this article were gathered from the Internet. Though due care has been taken to ensure that the information provided in this article is correct, the author does not guarantee the accuracy of the same. 


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