Will Bala's exit hamper Murthy's revival plan for Infosys?

The abrupt departure of Bala has surprised the industry and the stock market, especially since he was seen as Murthy's blue-eyed boy.

Bala's elevation as Lodestone chairman immediately after Murthy took charge as Infosys chairman was seen as a signal that Bala was going to be central to Murthy's blue-print to get the company back on track.

And when Ashok Vemuri, the other contender for the CEO spot, quit in August, Bala's eventual rise to the top was 'near certain', as one leading business daily put it.

Given this backdrop, Bala's decision to quit during a crucial phase for the company is all the more baffling.

Some churn in the senior management in Murthy's second innings was only to be expected given the change in power structure, but the pace and the number of exits are beginning to raise eyebrows. Eight exits in six months may not mean much for a company the size of Infosys with its vast pool of talent, but it could certainly impact staff morale and hurt investor perception in the short run.

Infosys shares Friday closed at its life time high of Rs 3352.30, and have gained nearly 47 percent in the last six months. But then, IT shares in general have done well during this period. A combination of weak rupee and recovery in demand improved sentiment for the sector.

It is hard to tell how much of a difference Murthy's return alone has made to the Infosys stock. Sentiment has played a major part, given Murthy's impeccable track record. And a few measures by Murthy, such as shifting focus to the unglamorous bread-and-butter IT outsourcing business and willingness to cut prices did boost revenues in the September quarter. And to be fair to Murthy, Infosys's growth woes will take a few more quarters to be fixed since the company's business model itself is in the midst of a complete overhaul. Murthy had said it would take him at least three years to rebuild the company.

But what is worrying the market is how soon the company will be able to achieve its target if experienced hands continue to jump ship at this rate.

Proxy advisory firm Ican Advisors' Anil Singhvi has been scathing in his attack on Murthy saying that the founder's return to Infosys was not viewed positively within the company and that he (Murthy) has not been able to attract fresh talent.

Senior officials who have quit since June include Basab Pradhan, Global Sales Head, Stephen Pratt, Head of Utilities and Resources for North America, Kartik Jayaraman, Head of Australia BPO sales, Humberto Andrade, BPO Head Latin America, Ashok Vemuri, head of Americas' operations and Sudhir Chaturvedi, Financial Services Head for the Americas.

Before the second quarter numbers were announced, many brokerages had raised the issue of senior level attrition, and at least one US-based brokerage had clearly mentioned it as the differentiating factor for choosing TCS over Infosys.

The better-than-expected second quarter numbers helped silence critics and also led to many brokerages raising their price targets and earnings estimates for the stock.

Opinion is divided on how much the ongoing exodus could hurt Infosys. IT research firm Offshore Insights feels attrition is not so much of a problem for Infosys as much as getting the company's business model right.

But sentiment could take a knock in the short run, since investors may prefer paying a premium for stocks with better earnings visibility and avoid those with even the slightest doubt of a nasty surprise. Also, Infosys shares are no longer as cheap as they were six months back.

The 47 percent rise in Infosys's share price since June has to be seen in the context of the performance of its rivals during the same period.

And here is how other IT stocks have fared:

Wipro:      68 percentHCL Tech: 65 percentTCS:         41 percentTech Mah: 91 percentMindtree:  86 percentHexware:  59 percent