Infosys: No meaningful uptick in shares yet as investors continue to fret over uncertainty

Infosys shares were marginally up on Tuesday after investors sold them for two days as the sudden exit of CEO Vishal Sikka dented the sentiment for the stock. Even an attractive buyback announcement over the weekend could not boost the mood on Monday.

The stock on Tuesday closed up 0.4 percent at Rs 877.15. This is a marginal uptick considering the investors lost Rs 33,076 crore in two days.

Reuters

Adding to the worries of the company's board, experts are raising uncomfortable questions over the timing of the share buyback announcement. As former Sebi executive director JN Gupta asks why did Vishal Sikka quit just a day-and-a-half before the buyback announcement was scheduled to be made? It is to be noted that the date for a meeting of the board of directors was already known (read here).

Earlier on Tuesday, Sebi chief Ajay Tyagi said the market regulator is keeping a close tab on the share price movement of Infosys post the dramatic developments on Friday.

So why is the stock just not picking up despite the buyback announcement?

As Firstpost columnist Madhavan Narayanan said in his Facebook live video (watch below) on Monday, the market loves stories and dislikes uncertainty. Investors buy on rumour and sell on news.

"For Infosys, the story is over but uncertainty has begun. The only positive news is LIC's interest in buying the stock," he said. Moreover, according to him, share buyback is an uninteresting way of boosting the shareholder value.

A report in the Business Standard on Monday said LIC, a key market player, is keen on buying the stock. "Infosys has made it to our ‘buy list’ for this month. We will continue to buy shares of the company," an official was quoted as saying in the report.

Meanwhile, brokerages have raised their concerns about the development.

"...Infosys’ business transformation (focus on revenue productivity with automation and new offerings, incl AI) faces a real risk of derailment as the company gets into ‘transition’ mode. While better capital allocation (buyback) and the uptick in operations are positives, leadership transition and the risk of senior attrition can hinder growth," HDFC Securities said in a note to its clients.

According to ICICI Securities, the fortunes of the company was fully linked to Sikka.

“No other company within our coverage universe, barring Infosys, has had its fortunes linked to just one person. Tata Consultancy Services (TCS), Wipro and HCL Tech (HCLT) have seen their CEOs change over the past two years with the transitions being seamless, having limited impact on employee morale and customer perception," the brokerage said in a note.

It expects Vishal Sikka’s exit from Infosys to have a definite impact on high performer employee attrition, pace of next generation capability creation, investments in software and products, and in the organisation's risk taking ability.

"High performers at Infosys identified more with Sikka in recent times rather than Infosys as an institution, and may now look at avenues outside the company (unlike TCS, for example, where employees have always prided themselves in working for an iconic institution more than anything else)," it said.

All in all, despite the buyback, it is unlikely that the stock will say a meaningful uptick in the near term.