At a time when markets are at near peak levels, Infosys is near 52-week lows. On Friday, the stock came crashing down following the resignation of Vishal Sikka and tensions between the board and the some of the founders.
Tensions between Sikka and the Founders?
There were tensions between the board of directors of Infosys and some of the founders, particularly Narayana Murthy. However, these were not serious allegations, but rather on worries over standards of governance.
In a letter to the staff, Sikka said, ''I cannot carry out my job as CEO and continue to create value, while also constantly defending against unrelenting, baseless/malicious and increasingly personal attacks....After much contemplation I have decided to leave because the distractions, the very public noise around us, have created an untenable atmosphere.
Stock comes crashing down
Infosys is one stock where the holding from small individual shareholders is very huge, because the promoters only have a small holding. On Friday, the Infy stock fell over 10 per cent and investors lost Rs 22,400 crore. In fact, in intra day trade, the stock hit a 3-year low losing almost 31,000 crores in market cap. It reminded one of the days when the quarterly numbers were declared and the company saw wild fluctuations in the stock price.
Is it worth buying the stock?
The problem with buying the stock is not worries over the Sikka exit. In fact, it is more about the business environment changing dramatically. Client spends are reducing and margins are getting squeezed. Quarter on quarter, larger companies like TCS have failed to provide a great set of results. Over reliance on the US markets and the H1B visa issues there are going to be lingering problems. While Sikka can be replaced, it is difficult to see how the tough business environment can change. At this time a tussle between the board and the founders should be the last thing to happen.
Buying at the right price
One will have to watch the quarterly performance of the company at least for the next two quarters to study the impact of the Sikka exit and the paradigm shift taking place in the IT industry. It is not a question of buying the Infosys stock, but, at what price. At the current market price of Rs 920, one is getting the stock at a p/e multiple of 15 times one year forward earnings. For a company that is not seeing major growth in its quarterly numbers, it may still be expensive. So, if you get the stock at around the Rs 850 levels, it may not be a bad bet.
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