Infosys: Once bitten, twice hawkish

Take a cautious call; prune holdings before IT major's Q2 earnings

Once bitten, twice shy is what took place with equity fund managers on Infosys before the information technology company could announce its second quarter earnings last Friday.

Stung at least twice on their Infosys investment calls in a year, they preferred not to take undue risks despite anticipations of stable quarterly earnings. The shares had run 25 per cent during Q2 and for long the counter had been sustaining above Rs 3,000 before getting a further push on results day.

However, fund managers, in conversation with Business Standard, had shown reluctance to continue with a high exposure in Infosys and had talked about pruning stake to a certain extent while adopting a "wait and watch" policy.

All the top-10 equity schemes, which had pumped in Rs 875 crore in Infosys, preferred to cut this exposure before the results. The two largest equity funds, HDFC Top200 and HDFC Equity, pruned their holdings by 60-80 basis points (bps) during the quarter. One basis point is a hundredth of a percentage point. These schemes had held 9.35 per cent and 9.83 per cent in the company, respectively.

Franklin India Bluechip cut its holding 87 bps, to 7.86 per cent. Likewise with Reliance Growth, ICICI Pru Dynamic and UTI Dividend Yield, which pruned holdings 95-130 bps.

From the latest share holding pattern, domestic institutions brought down stake in Infosys by a little over two percentage points to 16.16 per cent as on September 30, against 18.28 per cent in the immediate previous quarter.

"In general, we are positive on IT as a sector, a strong contender for re-rating. With respect to Infosys, we took a cautious call. We might re-invest once a clear scenario emerges," says a chief investment officer.

“Though Narayana Murthy's comeback as chairman is considered positive, we cannot overlook some of the executives' exit, too.”

Since Murthy made a second coming, four senior executives have left. They were Basab Pradhan (global head of sales and marketing) who quit in July, Ashok Vemuri, global head formanufacturing and engineering services, resigned in August. In September, Humberto Andrade, head of the company's Latin America business process outsourcing operations quit. Kartik Jayaraman, global sales head, is the latest.

Such high-profile exits had sent tremors among market participants and brokerages were concerned at the developments. On Monday, the Infosys stock closed at Rs 3,323.50, up 1.5 per cent or Rs 49.60 on the BSE exchange.