Infosys shares at 3-year high

IT stocks zoom as investors cheer demand uptick

Buoyed by the positive sentiment for the information technology (IT) sector, IT stocks were on a roll on Monday led by sector giants such as Infosys, Wipro, TCS and HCL Technologies.

The share prices of Infosys, India's second largest IT services company today closed at a nearly three-year high. Its shares ended at Rs. 3,449.85 on the BSE, highest since January 1, 2011. 

Similarly, Wipro closed at Rs 524.20, an increase of over one per cent after touching an intraday high of Rs 520.10, the highest level since April 2000.

Shares of most Indian IT companies have been on the rise in the past few months, due to expectations of a rise in demand in the coming year. Most large and mid-size IT players have hinted at a marginal uptick in spending by clients and a rise in discretionary spending during 2014.

“Infosys is undertaking cost optimization, improving sales effectiveness and focusing more on the traditional Business IT. We expect these initiatives to drive earnings momentum in the near term. We retain our “BUY” rating on the stock,” brokerage house Prabhudas Lilladher had said in a note last week. The brokerage house has a target price of Rs. 2,900 on Infosys' shares.

Post Executive Chairman NR Narayana Murthy's return to Infosys, the company has undertaking several cost-optimisation and sales-enhancement measures. According to analysts, the company has started chasing large orders more aggressively, and is focused on improving its quarterly performance.

In a note published on December 4, 2013, Bank of America Merrill Lynch raised its target price for the stock to Rs. 4,000 from Rs. 3,700.

“Our meeting with Infosys CFO and more importantly channel check meetings in Bangalore last week bolstered our view that Infosys is on the mend,” Bank of America Merill Lynch said in the note. “We raise FY15/16 estimates by 3 per cent not only from cost optimisation efforts but also on better revenue growth prospects driven by improved deal participation and farming efforts.”

The brokerage house also said that planning a smooth CEO succession plan is a top priority for Murthy, and the company is considering external candidates for the job. There has been a lot of speculation over the next CEO of Infosys, as incumbent S. D. Shibulal is due for retirement in 2015, and this would bet he first time when Infosys appoints a non-founder CEO.

“We believe announcements will be made well in advance,” Bank of America Merill Lynch said.