The Hindu Business Line : Infosys ends down on fear of losing UBS

Bangalore, June 25 Shares of Infosys Technologies Ltd fell 2.48 per cent on Wednesday on talks that HSBC might acquire UBS, one among Infosys’ top-10 clients.

Although there has been no confirmation from either HSBC or UBS, the media has reported that HSBC might make an $80 billion bid for the Swiss bank. Shares of the tech major dropped by Rs 44.40 to Rs 1,748.60 from Rs 1,793 on Wednesday on the Bombay Stock Exchange.

IT Vendor

An analyst with a Mumbai-based brokerage Motilal Oswal said there is a possibility that UBS’ contract with Infosys might be terminated, once the deal is through. The analyst said HSBC would have its own IT vendor, and there is the possibility that UBS’ account might go to the vendor handling HSBC’s account.

However, UBS’ account with Infosys might probably be a big one valued between $100 million and $150 million, and it is not very easy to switch these accounts, he added.

He also said the evaluation gap between Tata Consultancy Services and Infosys was about 25 per cent, which meant Infosys was trading at a premium, while TCS traded at a discount. Investors might have wanted to reduce the risk on Infosys and put it in TCS. This could be another reason, he added.

Mr Harish HV, Partner Grant Thornton, said after an acquisition, the IT vendor usually does change. At the end of the day, they would have a common system, he added.

He said they might change immediately, or they may do it later. But there is also the possibility that Infosys might get larger deals from the common entity. However, Infosys would get a lower price for the larger deals, he added.

Downgraded

In its recent research report, India Infoline has maintained its sell recommendation on Infosys Technologies. “The excess stock performance has been fuelled by company’s better positioning (due to lower forex cover) to take advantage of the depreciating rupee.

"We expect the company to upgrade FY-09 guidance, but based solely on the higher Re/$ assumption. The business fundamentals remain challenging,” said the report.

Indiabulls downgraded the stock rating to hold. “Key concerns to our rating include a recession in the US economy, a further slowdown in the BFSI segment, currency fluctuations, stronger competition from global players in the offshore arena, and a greater-than-anticipated wage inflation,” said in its recent report.

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