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Infosys stock could open 2-4% higher Monday on appointment of new CEO & MD Salil Parekh

The stock which has given a flat return in the calendar year 2017 could well see a gap-up of 2-4 percent when trading resumes Monday, suggest experts.

December 03, 2017 / 10:50 AM IST
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Infosys which has underperformed benchmark indices for the year 2017 could see a gap-up opening Monday after the Board appointed Salil Parekh as its new Chief Executive Officer and Managing Director (CEO & MD) of the company effective January 2, 2018.

The stock which has given a flat return in the calendar year 2017 could well see a gap-up of 2-4 percent when trading resumes Monday, suggest experts. The stock closed 1.6 percent lower at Rs 958.50. If the gap-up sustains, the stock could trade near the Rs 1,000-mark.

After a knee-jerk reaction post-September quarter results, the Infosys stock had recouped losses gaining a little over 3 percent. India’s second-largest software exporter reported about 7 percent sequential growth to Rs 3,726 crore but slashed its full-year constant currency revenue growth guidance to 5.5-6.5 percent.

Infosys assured shareholders in the September quarter meeting that the process of identifying the next CEO and shareholder consultation outreach have been initiated and are progressing well.

The new CEO, Parekh is no stranger to the world of IT services, and not even to the process of a CEO search at Infosys.

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The former Capgemini executive was in the race for the top job at Infosys the last time around as well, when the Indian IT major decided in favour of Vishal Sikka.

Vishal Sikka, the first non-co-founder CEO of Infosys, resigned from the post back in the month of August over squabbles with founder NR Narayana Murthy over issues of corporate governance.

“The new CEO decision brings an end to uncertainty at the top, he is credited to be part of the team that turned around Cap Gemini,” Dinesh Rohira, Founder & CEO, 5nance.com told Moneycontrol.

“Nandan Nilekani and the new team will now steer the ship. The stock should see a 3-4 percent upside on Monday. The cleanup process at Infosys coming to an end setting the grounds to focus completely on the business growth trajectory,” he said.

The uncertainty around the stock and the future of the company should abate. Most of the IT names have done well in the past 1 year but Infosys lagged. Most brokerages either maintained their rating post September quarter results but some slashed their target prices.

CLSA and BofA-ML have put out the most aggressive 12-month target price for the stock at Rs 1,325 which translates into an upside of nearly 40 percent from the current levels. The appointment of the new CEO at Infosys will remove the uncertainty and put the stock back on investors’ radar.

“With the appointment of CEO, the uncertainty is over, the majority of IT shares had performed recently but Infosys was lagging behind, but now with the clarity on leadership, the stock should perform well,” Jimeet Modi, Founder & CEO, Samco Securities told Moneycontrol.

“P/E for IT industry is trading at 20-times trailing earnings while Infosys is trading at 15x, a deep discount, which now will get narrowed down. The appointment is positive for the stock both for the short and long-term,” he said.

AK Prabhakar, HoR, IDBI Capital told Moneycontrol the stock could open higher by 2-3 percent after the appointment of Parekh, but more upside will depend on the guidance Parekh gives.

Parekh joins Infosys from Capgemini where he was a member of the Group Executive Board. He previously headed cloud infrastructure services at Sogeti & Cloud Services division, apart from being Head of Asia-Pacific, North America and United Kingdom at Capgemini SE.

“The appointment of Mr. Salil Parekh as MD and CEO is a welcome move. The stock may react positively on Monday. Mr. Parekh is coming from Capgemini has 30 years of strong experience,” Sanjeev Jain, Associate Vice-President of Ashika Stock Broking said.

“He has proved himself in terms of business growth. So, I think the joining of Parekh may be taken as a positive step by the board of the company,” he said.
Kshitij Anand is the Editor Markets at Moneycontrol.

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