Moneycontrol Bureau
Infosys founders Narayana Murthy, Nandan Nilekani, S. Gopalakrishnan, S.D. Shibulal and K Dinesh have written to the company saying that their holdings should not shown under the promoters head, and instead should be reclassified as public holding. That is because none of the founders are any longer associated with Infosys in any capacity other than as ordinary shareholders.
As on June 30, founders collectively hold 15.94 percent in the company. Nigel D’souza of CNBC-TV18 has some interesting data on what a likely reclassification will mean for Infosys’s weightage in the Nifty.
Based on Friday’s prices, Infosys’s weightage in the index will increase 120 basis points (1.2 percentage points) to 8.3 percent making it number one ahead of ITC, which is at 7.39 percent as on Friday. That is because the free-float market capitalization of the company will go up, as the public shareholding rises by 15.94 percent (Rs 33,000 crore in market capitalization terms) and the promoter holding reduces by that amount. Higher the public shareholding, more the proportion of freely floating shares, and hence greater the weightage in the index. Benchmark indices Nifty and Sensex assign weightage based on the free float and not just absolute market capitalization.
The increase in Infosys’s weightage will come at the expense of other heavyweights, since the total has to be 100. To put the 120 basis point- increase in perspective, there are at least 27 stocks in the Nifty which have an individual weightage of 1.2 percent or less.
That is as far as the numbers go. In general, a higher weightage in the index is good for the stock, as many funds have portfolios that mirror the Nifty. So if the weightage of Infosys goes up, funds will have to buy more shares of Infosys to rebalance their portfolio.
But in reality, not all funds may want to increase their exposure to Infosys just because the weightage in the index has gone up. Infosys’ operating performance has been gradually improving over the last year, but newly appointed CEO Vishal Sikka has said that it would take at least two more years before Infosys’s growth rates catch up with the industry average.
Sikka has still not spelt out his plans, other than saying that he wanted innovation to be at the heart of Infosys’s offerings, and that artificial intelligence, automation and big data would be thrust areas.
So many fund managers may prefer to stay underweight on Infosys till they get some clarity on the company’s turnaround strategy, even the company’s weightage in the Nifty does go up.
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