Stocks

Infosys’ stock rallies on Nandan Nilekani’s comeback

Our Bureau Mumbai | Updated on January 09, 2018

infosys

However, long-term concerns about sector and stock remain

Shares of Infosys sprinted on Monday following Nandan Nilekani’s appointment as non-executive chairman of the company on Thursday (post market hours).

Investors welcomed the comeback of Nilekani by pushing up the stock as high as 4.5 per cent intraday. It finally settled up 3.14 per cent on the BSE.

Nilekani, a co-founder of Infosys, served as the company’s CEO between 2002-2007. During this period, he contributed significantly to the company’s revenues growing at a CAGR of 41.5 per cent.

However, Nilekani's appointment has only stemmed the downward spiral post-resignation of Vishal Sikka and is no assurance for any upside or re-rating of the stock, say analysts. “The arrival of Nilekani addresses the risk of further downside; more to do for gradual valuation re-rating,” said Ashish Chopra, analyst at Motilal Oswal.

Sectoral headwinds

While it will be business as usual now with Nilekani temporarily at the helm, long-term concerns about the sectoral headwinds and future progress of many issues such as selection of new CEO, reconstitution of the board, future deal wins, pricing of new deals, and clarity on Panaya acquisition still remain. Besides, risks to FY18 guidance have also crept up.

Developments related to these events will act as triggers for any move in the stock and will determine its long-term rating. Currently, most analysts have a ‘buy’ or ‘hold’ recommendation on the stock. The stock seems to have an upside of about 9 per cent in the very near term, show various analyst estimates.

“We believe with Nilekani’s appointment the tussles with the founders would be over, which would restore a sense of calm among investors, employees, and clients. However, our concerns on disruption in Infy’s transformation process to become a new-age firm and potential slippages in execution remain, especially with Sikka stepping down from the board. Hence, we await clarity on the new CEO selection and the strategy, going forward,” said Rishi Jhunjhunwala, analyst at IIFL Institutional Equities.

The lowest valuation among the top four IT companies at 14 times FY19 estimated earnings (five-year low) and the ongoing buyback will add further relief to the stock. But Infosys has become a trading bet than an investment pick amid a short-term view.

Published on August 28, 2017

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