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Murthy's return at Infy:Past track record no indication of future performance

 Murthy's return at Infy: Will he able to resurrect growth?
Infosys: Quotes, News
BSE 785.60BSE Quote7.55 (-0.96%)
NSE 785.40NSE Quote7.3 (-0.93%)
For long, Infosys was described as a bellwether stock by almost every equity analyst, including those from foreign funds. According to the Merriam Webster, bellwether is defined as: "one that takes the lead or initiative".

If we go by the Merriam Webster definition, Infosys is no longer a bellwether among IT companies. With revenue growth projections way below NASSCOM's projection for the Industry, Infosys is no longer leading the pack. The NASDAQ listed Cognizant has displaced the company as the second largest in terms of revenue, HCL Tech has stunned industry with its growth pace and TCS is the leader by far, beating analyst estimates on revenues and profits every quarter.

For a stock that withstood even the 2008 stock meltdown, it's frightening to see it fall as much as 20% on the day of its quarterly results. In fact, one can't remember in recent memory, any Sensex stock falling 20 per cent on the day their quarterly numbers were declared.

What's ailing Infosys?

Industry experts believe that Infosys has always been risk averse, which has come to haunt the company. They point out that the company is sitting on a mountain of cash and has not made any acquisition that would help grow the company, except the recent Lodestone acquisition. The company just does not seem to let the money go for a fruitful acquisition that would boost revenues and growth. How far can a company grow organically they question.

It's conservative attitude has also been questionable to the extent that it has not been willing to sacrifice margins for volumes, while TCS, Cognizant and HCL have been able to gobble us clients.

"One thing I can vouch for is the ethics. The company has never compromised on margins and this is deeply ingrained. I would agree with this model," says Shashi Shekhar, a former employee of Infosys, who spent almost 16 years with the company.


Infosys has also had a problem with lack of empowerment. "They have a pretty top down approach and the second and third rung leaders are not empowered. This makes for lack of quick decision making, which can make peers more nimble," says Shekhar.

Will Murthy revive growth numbers?

It's extremely doubtful that he is likely to be able to do so. Since Murthy retired the global environment has changed and Infosys depends on the global economic environment. Market conditions in the US are bad, Europe has gotten worse and the US immigration rules are making visas for software professionals even tougher. Many top level employees, whom Murthy used to work have left. The environment has got more dynamic, while Murthy is known to be relatively conservative.

"Narayana Murthy is a great motivator and presently the morale is low. If he can boost morale of the second and third rung leaders, Infosys could be back on track. I can't see any great changes happening strategy wise in the short term," says Shekhar.

"We believe that Infosys' earnings visibility will remain poor in the near term as it faces growth/margin trade-off amid modest IT spending," GoldMan Sachs said in a report, after Murthy's appointment.

Clearly, it's going to be a case of past track record being no indication of future performance.

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