Tide turns for Infosys stock
Scrip rises 1.9% on talks of Nilekani’s return & funds’ support

The Infosys stock got some form back on Wednesday on market speculation that ex-CEO and founder Nandan Nilekani might return as chairman of India’s second largest IT company.

The stock, which has fallen more than 15 per cent since Friday, wiping out about $5.2 billion in market value after the surprise resignation of CEO & MD Vishal Sikka, ended 1.9 per cent higher on Wednesday.

The stock fell 9.6 per cent on Friday and plunged another 5.4 per cent on Monday, despite the company announcing a share buyback of up to Rs 13,000 crore at a premium of Rs 1,150 per share.

On Tuesday, the shares closed near flat at Rs 875.40, after being down more than 0.6 per cent in morning trade.

However, the counter saw some buying interest on Wednesday on talks of Nilekani’s return and also on a statement from Oppenheimer Fund, the company's third largest institutional investor, that its views on Infosys have not been “materially” impacted by Sikka’s exit.

On Wednesday,  the stock closed at Rs 894.50 on the BSE, up 1.98 per cent. The stock also made a comeback to the list of top 10 most valued companies on the BSE and the NSE. The IT major had slipped out of the list this week amid extreme weakness in the stock after the sudden exit of Sikka.

Its market valuation stood at Rs 2,05,463.70 crore at the close of trade on the BSE on Wednesday. On the NSE, its m-cap sttod at Rs 2,05,071.22 crore, ranking it in the tenth position.

On Wednesday, top fund managers and domestic institutional investors wrote to the board of Infosys pitching for Nilekani’s return in a “suitable capacity,” which could resolve the leadership crisis in the company.

According to the letter from fund managers, Nilekani enjoys the confidence of customers, stakeholders and employees and his return to the board would instill credibility.

 The retired founder executives and their families together own about 12.75 per cent of Infosys' shares.

On an investor call last Friday, Infosys repeatedly assured shareholders and analysts that it would work to end the dispute soon and ensure that its new permanent CEO, when named, would not be distracted by the issue.

"It cannot continue in this fashion. I'm always an optimist, and I believe that in the coming weeks we'll have to find ways to put this decisively to bed," said Infosys co-chairman Ravi Venkatesan.

This however has not pacified the market players. With uncertainty over leadership remaining an overhang, analysts have been advising investors to use the buyback offer to exit the company.

Several brokerage houses while recommending investors to avail of the buyback offer, which is at a huge premium to the current market price, have also cut the March 2018 price target of the Infosys stock.

At least nine brokerages downgraded their ratings on the stock after the CEO’s resignation, with just one lifting its recommendation.

“Beyond the loss suffered due to Sikka’s resignation, the way the board handled the issue was even more damaging,” said Sudheer Guntupalli, an analyst at Ambit Capital.

His firm has put its rating under review, citing factors including corporate governance, succession planning and the prospect of a class action lawsuit against the company in the US.

In its board meeting on Saturday, Infosys said that the company will buy back up to 11,30,43,478 crore shares aggregating up to 4.92 per cent of the paid-up equity capital via the tender route at a price of Rs 1,150 per equity share.

“The buyback offer size is 20.51 per cent of the total paid-up equity capital and free reserves of the company as per the latest audited balance sheet as on 30 June, 2017,” said a company statement to the BSE.

Nirmal Bang Securities, in a report, maintained its sell rating on the stock and cut the March 2018 target price from Rs 846 to Rs 794 with downside risks.

“Downside risks will arise if there is loss of long-term relevance to customers. Global IT services industry has examples of leading players becoming either also-rans or disappearing completely as they could not make the relevant transition,” the report said.