The 21 per cent decline in Infosys’ share price post-results was sparked as much by its disappointing numbers as by fears that it is losing its sheen as the poster boy of the Indian IT industry.

The main point of concern is Infosys’ slow growth relative to the sector.

The company’s revenues in dollar terms have grown a meagre 5.8 per cent in FY 2013, lagging industry growth of 10.2 per cent for a second year in a row. This looks set to continue.

Growth guidance

Infosys’ growth guidance for the industry for FY 2014 at 6-10 per cent is again lower than Nasscom’s at 12-14 per cent. This clearly highlights the loss of market share in its core businesses which account for 63 per cent of its revenues.

Infosys’ reputation as a premium services provider also seems to be taking a hit. Though it was the frontrunner in acquiring consulting capabilities in the Indian IT space, its consulting revenues have been slipping in recent quarters, with clients cutting back on discretionary spending.

Huge cash pile

Consulting accounted for 31.4 per cent of its revenues in 2012-13, but this hasn’t helped Infosys’ margins. The profit margins at 28.6 per cent for this year aren’t materially superior to those of TCS. What is more, they may see further pressure, due to residual impact in the coming quarters of the recent wage hikes.

Also bothering investors is Infosys’ huge cash pile of more than $4 billion, much more than that of TCS, HCL Technologies or Wipro. This has been depressing the shareholders’ returns significantly for Infosys.

From 40 per cent in 2006, the return on equity for Infosys is down to 28 per cent in 2012-13.

Even as the company is undecided on acquisitions, a higher dividend payout may offer comfort to investors.

Whatever the reason, this under-performance has led to a waning stock market preference for Infosys, relative to its peers. While Infosys enjoyed a premium to TCS a few years ago, it now trades at a discount, with a price earnings multiple of 13 times forward earnings against 19 for TCS.