FIIs ignore headwinds, lap up Infosys shares

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Foreign institutional investors (FIIs) are raising bets on Infosys despite the company's forecast of choppy financial performance in the near term and several senior-level exits.

These investors raised stake in the IT bellwether by 1.45 percentage points during the quarter ended March 31, making it the third consecutive quarter of gain in FII shareholding. It also took FII holding in the IT firm to the highest ever since 2001.

Foreign institutions now hold 42.10 per cent in the IT major, compared with 40.65 per cent at the end of December quarter and 39.55 per cent at the end of September quarter.

At the end of March quarter of 2004, they held 41.83 per cent, according to corporate database Capitaline, which has data on the firm's shareholding patterns since 2001.

The Netherlands-based Stichting Pensioenfonds ABP and US-based Europacific Growth Fund own 1.09 per cent and 1.01 per cent, respectively, Infosys' latest shareholding data show.

In the near past, there was no record of these FIIs holding Infosys shares.

Existing FIIs Abu Dhabi Investment Authority and the government of Singapore have raised stakes in the firm to 2.54 per cent (from 2.47 per cent) and 2.22 per cent (from 2.06 per cent), respectively.

But India's largest domestic institutional investors Life Insurance Corporation of India (LIC) further trimmed its stake in the IT firm to 3.25 per cent during the quarter from 3.71 per cent at the end of previous quarter. LIC and some other domestic institutional investors held 7.24 per cent stake in the company at the end of December 2012.

FIIs have lapped up Infosys shares when it the stocks underperformed its peers by sliding 5.57 per cent this calendar year compared with a 1 per cent decline in TCS and 0.50 per cent drop in Wipro shares.

The Infosys shares have fallen over 14 per cent from its March peak of

Rs 3,835 and around 10 per cent since March 12, when chief executive

officer SD Shibulal told analysts that the company might just about

manage to meet the lower end of its 11-12 per cent dollar revenue

guidance for the March quarter.

The stock has swung between Rs 3,300 and Rs 3,800 this year. The

management expects weakness to persist in the initial part of FY15 due

to slowdown in client spending.

"FII sentiment has been intact on the Infosys counter ever since NR

Narayana Murthy made a comeback. Murthy is known for conservative

guidance. He is known for beating those too. FIIs seem to be confident

on his leadership and thus have paid no heed to the revised guidance,"

said Sudip Bandyopadhyay, CEO and MD of Destimoney Securities, who put

the fair value of the stock at Rs 3,200-3,300.

Nitin Padmanabhan, an analyst at Espirito Santo Securities, said

Infosys once had a record of consistently beating guidance.

"Over the past two years, the firm has been unable to predict

performance accurately and has discontinued quarterly and full-year

EPS guidance. With a strong focus on winning large annuity deals from

the business operations segment, we believe this unpredictability will

decrease and drive a re-rating of the stock," he added.

Addressing analysts in March Murthy had admitted that the company was

unable to boost operating margins between 2011 and 2013 in line with

the rupee depreciation.

"We expect Ebitda margins to drop by 30 basis points

quarter-on-quarter to 27.5 per cent in the March quarter on account of

slowdown in spending by customers in hi-tech and retail & CPG

verticals and random project cancellations which have hurt overall

volume growth," Angel Broking said in a note to clients.

The brokerage expects Infosys to guide for 7-9 per cent revenue growth

in FY15. The firm will announce quarterly earnings on April 15.


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