Infosys founders Narayana Murthy and family sold 23.3 percent of their stake on Monday, along with Nandan Nilekani and family – who sold 31.3 percent stake. K Dinesh and family and SD Shibulal too sold 21.5 percent and 9.6 percent, respectively. The deal was done at a 4 percent discount to Friday's closing.
The Infosys stock fell 5 percent at yesterday’s closing. Vibhor Singhal of Phillip Capital believes investors are reading too much into promoters selling their stake and yesterday’s selling was an over-reaction. However, overall he is bearish on the stock when compared to TCS and Tech Mahindra.
He says Vishal Sikka's vision for the company will take time to materialize.
In the midcaps space, he likes Persistent Systems. It is his top-pick in the space.
Below is the verbatim transcript of Vibhor Singhal's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: What is your spin on Infosys? What was your opinion on stock anyways and now with promoters looking to cash out or having cashed out is it given you a sense that even the promoters don’t see an immediate upside? Is that the interpretation?
A: I wouldn’t necessarily read too much into the promoters selling their stocks yesterday. The fall that we saw yesterday was probably a bit of an overreaction, people probably assuming that promoters are selling because they see limited upside from current levels in terms of the stock potential. However, yesterday, it was an overreaction but over all we remain bearish on Infosys as compared to Tata Consultancy Services (TCS) and Tech Mahindra. We believe that the company will underperform the larger peers over the period of next two years.
They have run too far behind these companies and the new strategy that Vishal Sikka has put in place is going to be long drawn out process. So, till then we believe it will be very difficult for the company to actually outperform the other companies.
Sonia: So you are saying Infosys will underperform the rest of its peers. So, say for the next one year how much will Infosys grow in terms of a stock price and how much do you expect the others to grow?
A: Stock price would be array of function of the earnings I would say. So, for example we expect around 20-25 percent earnings growth for TCS and Tech Mahindra but it would probably be in the range of 12-15 percent at the max for Infosys.
Sonia: What would your top picks be?
A: TCS and Tech Mahindra are top pick.
Latha: What are your midcap favorites?
A: In midcaps, we like Persistent Systems; the stock definitely has run up a lot in the past few months. So, the valuations appear a bit expensive but the domain that they are into is very exciting and is the domain of the future. So, they would definitely do well over the next two years. So Persistent System looks to be the top pick in the midcap.
Sonia: How are you reading the entire IT sector as a whole for 2015? Many experts have indicated that the dollar strength there is cyclical biased to market as well. So defensives like IT may move to the backburner in 2015. Is that a sense you are getting as well?
A: Not necessarily, if you see operationally we are poised for a very strong growth in the entire IT sector for both CY15 as well as CY16. We are seeing signs of revival in discretionary spend in the US. Plus, Europe is opening up as an economy like anything. These companies are never outsourced before and they are now opening up for the outsourcing especially areas like Central Eastern Europe, France and Spain - these countries are opening up to outsourcing to these Indian IT companies. So, the kind of growth that you can expect from them is very strong, much more ahead of the US numbers that you can see. So, overall the IT sector will do very well over the next two years I believe and that should definitely reflect in the stock performance as well.
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