Infy downgrade on no mgmt initiative, dull economy: Cowen

The IT sector, as a whole, has been laggard in performance. On Tuesday, IT giant Infosys received a downgrade after it fell nearly 2 percent in early morning trade after Cowen & Co cut its rating on the stock to 'neutral' from 'outperform'. Moshe Katri, MD, Cowen & Co explains on CNBC-TV18 that a survey of the Indian IT sector indicated that the IT giant's management lacked initiative was hampened by a rise in the market share of global rivals in India and was unable to cope with a lackluster economy.

Below is an edited transcript of the analysis on CNBC-TV18 Q: What are your key concerns on Infosys and what does the rating downgrade imply in terms of a renewed price target or earnings expectation?
A: On Tuesday we published our Offshore & IT Spending Survey for 2013. From a larger perspective, we have observed a stronger intensity in spending plans for customers looking into next year.
For Infosys, the specific reason for a downgrade has to do with the way they ranked in two-to-three parameters. Infosys scored poorly in the parameter of existing clients' intention to spend with Infosys versus tier-I offshore rivals.
Infosys is still not getting enough traction to be able to initiate that recovery in revenue growth that was hoped for. Another trend that we estimate to be worrisome to the entire tier-I offshore sector based in India is the continued gain in marketshare by global IT services companies in a host of categories.
Even in pricing, where tier-I offshore vendors continued to do well vis-à-vis the global vendors, the domestic IT sector has lost ground comparatively in terms of client-perception to global IT service vendors.
With global IT services vendors being perceived as economical as the tier-I offshore vendors based out of India, it means that the competitive landscape will continue to intensify. Q: What do you think is leading to this loss of comparative edge with new clients and existing clients in Infosys and would the company have to sacrifice pricing to even maintain growth in volume at acceptable levels?
A: Pricing is probably one of the few parameters which  for the past eight years has been very stable on our survey. I believe that whether Infosys decides to sustain its margins or prices, is directly related to the management’s decision- what the management decides to do and whether it feels comfortable that the restructuring process is going to ultimately gain that traction which is currently absent.
So at this point there are no indications that Infosys is sacrificing prices or changing its pricing policy in order to gain share.
So I believe that Infosys needs to start focusing on things a bit differently. And I think that ultimately it  will regain that traction, but our survey does not indicate that it will happen anytime atleast in the next three-to-six months.