Moneycontrol Pro Panorama | What a management change at TCS means for its investors

TCS’s shares are down only marginally by 0.44 percent at 12.28 pm while peers such as Infosys and Wipro were in the green. (Representative image)

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. 

Senior management exits are usually carefully curated and solemn affairs, with statements issued by all parties — the leaver, the company and the designated replacement — ranging from the anodyne to gushing. The usual nods are given to the organisation’s history and culture, invaluable contributions made by the outgoing chief, thanks from the board and employees and ending with assurances from the incoming chief to carry on the good work.

While these messages are calculated to reassure various stakeholders such as employees, creditors and customers, in the case of listed companies, they are calculated to reassure investors, too.

You can see these messages in some form in TCS’s statement on the unexpected exit of its MD and CEO Rajesh Gopinathan, who had around 13 years to go before he reached the retirement age at the company. He is to be replaced by K Krithivasan, a TCS veteran who is heading the vital BFSI business group and has around 7 years to go before he retires. As opportunities go, he has one that would not have come his way if Gopinathan had stayed as MD and CEO till retirement. Good for him.

TCS’s shares are down only marginally by 0.44 percent at 12.28 pm while peers such as Infosys and Wipro were in the green. While this can’t be called a telling comment on the market’s reaction to the development, it’s known that investors hate uncertainty. The time in which Gopinathan’s resignation has landed is also a turbulent one. The Fed’s and the ECB’s rapid withdrawal from quantitative easing has upended calculations of several large companies, forcing them to revisit their hiring and business plans. That has introduced an element of uncertainty for software companies, especially if there is a slowdown in IT spending.

TCS’s Investors would have liked to see continuity at the top management in these markets. My colleague Sree Ram’s analysis of the development says that the seven-odd years that Krithivasan has are enough to make a mark. The CEO-designate has also said he will be focused on business continuity and may fine-tune strategy here and there, but no ‘dramatic’ changes are likely. That should be reassuring for those who keep a close watch on earnings growth. But his relatively short remaining tenure and the COO’s retirement approaching also mean that leadership changes will be a continuing affair, says Ram, and Krithivasan will also need to plan these senior leadership changes.

Do investors have any reason to worry? My colleague Madhuchanda Dey writes that the untimely exit of Gopinathan is a surprise, but not a setback. And, despite a challenging macro environment, TCS is well-placed, gaining market share and poised to benefit from a cooling labour market. But the stock of TCS has underperformed the IT index in the past couple of months, which does raise the question of what investors must do in response to this development. Do read to find out.

Normally, this is where the newsletter would end and if you are a hard-nosed investor then you can stop reading, if you wish. But why Gopinathan’s exit was a surprise to everyone is that he was doing well as was the company, he had over a decade of service left and could have easily held the fort till he superannuated. The 6 lakh employees in the company he headed, many of them youngsters, will be reading every word around this development.

That’s why his replies at a press conference were a refreshing change from the prepared remarks one is accustomed to. After exiting TCS, he wants to enjoy “some downtime, spending time with family, and sitting back and thinking about what he wants to do next”. And, “I can’t tell you how happy and light I feel. Till a week back, it was all-consuming. In the last 48 hours, it has been very liberating. I have no clue what I’m going to do (going ahead)”. That he has no idea what he’s going to do next means he quit without a plan. And that the job had become more “all-consuming” than he may have liked. He also said he had been thinking of it for some time and discussed it with his boss on and off. So, this is not some impulsive decision.

One interpretation could be that he wanted a better work-life balance and not wait till 65 to achieve it, and not even till his current term ended. In an era where quiet quitting is making waves and there is a raging debate on whether the younger generation has got its view on work all wrong, Gopinathan’s decision and his statement support their view that life is not all about work. He may be a lone ranger, but in quitting he may have unwittingly become a poster boy for a generation of young workers. Not everyone may have the means that he has to up and go, but his decision changes the tone of the debate for sure.

Investing insights from our research team

Weekly Tactical: Why this IT midcap looks good, post correction

Sirca Paints: Potential to continue its upward trend

What else are we reading?

What record FPI short position means for the market

Banking rout – A few bad apples, or is the whole barrel at risk?

Negative cues make 6 percent plus growth a distant goal

Mohit Joshi's exit shows how Infosys has become a victim of its own success

Digital lending ecosystem can learn from microfinance’s brush with RBI

The last hurrah for three grand old men of Karnataka politics?

Personal Finance: Lessons for Indian deposit holders from SVB’s collapse

Carl Icahn urges Fed to keep fighting inflation ‘disease’ after SVB collapse (republished from the FT)

SVB crisis has brought the trade-off between price stability and financial stability back into focus

Xi Jinping’s turn as peacemaker will greatly raise China’s standing, but could intensify global geopolitical tensions

ChatGPT4 Release: AI is about to transform our children. Are we ready?

Quantum Computing: Google is making breakthroughs much bigger than AI

Foreign Lawyers in India: Globalisation of legal practice necessary for growth

Technical Picks: Nifty, DLF, Coal India, Bharat Petroleum Corporation and Natural gas (These are published every trading day before markets open and can be read on the app).

Ravi Ananthanarayanan
Moneycontrol Pro