Infosys Turns Hot On Adr News

Frenzied buying interest on the last two trading days of the week saw Infosys Technologies zoom to a new 52-week high at the bourses. The buying interest was largely triggered off by the finance ministry's decision to clear the ADR issue of the company.

On the Bombay Stock Exchange (BSE), the scrip ended the week at Rs 2725.25, a gain of Rs 119.25 over the previous week's close. On the National Stock Exchange (NSE), the scrip gained Rs 132.35 to end the week at Rs 2738.55.

Last week, the Bangalore-based software technology producer became the first Indian corporate to issue American Depository Receipts (ADRs) and the first Indian company to seek listing on Nasdaq, US.

The company has an equity base of Rs 16 crore, 80 per cent which consists of bonus issues.

The scrip had been hovering around the Rs 2500 levels for some time as investors were turning their attention to lower-priced software stocks. However, the prospective ADR issue has pushed the scrip back to centre stage again.

Players feel that despite the turmoil on Wall Street, the Infosys ADR is likely to fetch a premium of 10-15 per cent over the prevailing price of the scrip in the local market, i.e., around $75 (Rs 3,100-Rs 3,200).

Despite the euphoria over the ADR, a section of the market expressed apprehensions about the issue. "Clients do not dole out consulting and information system (IS) design work just because a firm has American employees and a Nasdaq listing. Infosys will have to upgrade its skill in management consulting, an area where it has no presence currently. Unlike other players like Tata Consultancy Services (TCS), Infosys has virtually ignored the domestic market, where it would have been able to gain precious experience in IS consulting which could then be leveraged overseas," says Kaiomurz Motawara, analyst, First Global.

"Hiring Americans with the help of stock options may be a way to build expertise, but the results of such an endeavour would be highly distant and uncertain, apart from being expensive," he adds.

"Finally the increased profitability does not come for free. This kind of work entails huge exposure to liability suits which could wipe out a company of the size of Infosys.

Analysts also feel that since 80 per cent of Infosys clients are repeat customers who are familiar with the company's cost structure, they may be unwilling to pay more after the ADR issue. They also feel that after the float, the capital of the company as well as personnel will rise substantially.