Infosys Investors Balk as CEO Says Worst Over: Corporate India

Infosys Ltd. Chief Executive Officer S.D. Shibulal says the worst may be over for India’s second-biggest software-services provider, which slumped 18 percent in the past two months. Investors remain to be convinced.

Infosys is battling to win business from customers who are “less confident in committing long-term investments” amid economic uncertainty, Shibulal said in an interview yesterday with Bloomberg TV India. That means the Bangalore-based exporter must shed its “conservative” tack as it competes for about $18 billion in outsourcing contracts, according to Walter Rossini, a Milan-based fund manager for Aletti Gestielle SGR Spa.

“Infosys management has not been clear about the direction of the company, while their competitors have made it very clear they will be aggressive,” said Rossini, whose fund holds 11,000 shares of Infosys. “The next two years will define the next decade for Infosys and the industry and my fear is they won’t be able to change rapidly.”

Infosys has been the most volatile among Asia’s technology stocks in the past 30 days after the company on April 12 posted sales that fell short of its own forecast amid a spending slowdown in North America and Europe, according to data compiled by Bloomberg. The company won $1 billion in business in the six months ended March and has a “very strong pipeline for large opportunities,” Shibulal said.

Sell Recommendations

Still, the number of sell recommendations from analysts has climbed to 19 percent from 9 percent a year earlier, according to data compiled by Bloomberg. Aletti Gestielle pared holdings from 531,000 shares in June 2010 when the stock was trading at 2,791 rupees, according to data compiled by Bloomberg.

Shares of Infosys fell 1.1 percent to 2,359.85 rupees in Mumbai trading, extending the stock’s slide since the start of the quarter on April 1 to 18 percent. India’s benchmark S&P BSE Sensex Index has climbed 4.5 percent in the period.

Infosys lags behind Tata Consultancy Services Ltd., India’s largest software exporter, and smaller rivals HCL Technologies Ltd. and Wipro Ltd. in competing for the biggest source of orders worth at least $100 million, according to Harit Shah, an analyst with Nirmal Bang Equities Ltd. in Mumbai.

Tata Consultancy increased its share of revenue from infrastructure services, or contracts to manage clients’ information technology networks, to 12 percent or 72.4 billion rupees ($1.3 billion) in the year ended March. The share from such business was 6 percent in fiscal 2007. HCL Technologies made 24 percent of its sales in the year ended June 2012 from network management.

‘Playing Catch-Up’

Infosys’s revenue from infrastructure management was 27.8 billion rupees, contributing 6.9 percent of sales. That share for the Bangalore-based exporter has fallen from 7.2 percent in fiscal 2010, according to data compiled by Bloomberg.

“TCS and HCL have positioned themselves through years of preparation to win large deals in areas where those deals are available,” said Urmil Shah, a Mumbai-based analyst with Kim Eng Securities Pvt. “Infosys has not been aggressive and is now playing catch-up.”

Infosys’s top management are also seen as a reason for the stock’s performance, according to Bloomberg Industries analyst Anurag Rana. The shares have gained 6.1 percent since Shibulal took over in August 2011, while Tata Consultancy has surged 61 percent in the period.

Company Issues

“When TCS and Cognizant are coming out beating them handily, then it indicates this company has issues, instead of the industry,” said Rana. “That’s why the leader of the pack no longer is, and why the finger is pointed at management.”

Tata Consultancy last month reported a 22 percent jump in fourth-quarter net income to 36 billion rupees, while Cognizant Technology Solutions Corp. rose the most in nine months in New York trading on May 8 after reaffirming its annual forecast.

“It’s just not a bellwether stock in India anymore,” Rajesh Singh, who previously managed the Fidelity International Opportunities Fund and is now a private investor owning Infosys shares, said from Hong Kong. “Execution-wise, they have slipped up a bit and might lose their premium if results keep slipping.”

Before it's here, it's on the Bloomberg Terminal.