Institutional shareholders show faith in Infosys

Top institutional shareholders of Infosys showed confidence in India’s second-biggest software exporter in the quarter ended September 30, which saw the exit of its iconic founder N R Narayana Murthy and a change in the top management.

Nine of the 10 major institutional shareholders increased their stake in the Bangalore-based firm in the last quarter, data available on the Bombay Stock Exchange (BSE) website showed.

Life Insurance Corporation (LIC), Abu Dhabi Investment Authority, ICICI Prudential Life Insurance, Government of Singapore and HDFC Trustee Company, which figure among the top 10 non-promoter shareholders, have all increased their stake in Infosys in the last quarter. Only Franklin Templeton Investment Funds marginally reduced its stake in the company during the last quarter. (See chart)

The 1981-founded Infosys’ shares lost 12.85 per cent in the quarter ended September 30, in line with bigger rival Tata Consultancy Services (TCS) and the 30-stock Sensex, both of which also fell over 12 per cent during the same period.

Infosys’ stock surged 6.83 per cent to Rs 2,680.50 on Wednesday, its highest close since August 4, as its second quarter profit beat estimates and its full-year rupee guidance pleased analysts. Infosys results and outlook lifted other IT stocks, too. The BSE IT index gained 5.21 per cent, the highest among the major sectoral indices.

“Infosys reported better Q2 results than our/consensus expectation in a quarter that had demand weakening headwinds, but currency tailwinds. However, the marginally lowered guidance for FY12 dollar revenue (was) below, but ahead of our consensus estimates,” said Shashi Bhushan, senior research analyst – institutional equities at Mumbai-based Prabhudas Lilladher. He recommended clients to switch from TCS to Infosys due to lower exposure in Europe and the capital market.

However, not everybody is gung-ho about the prospects of Infosys.

“The stock has had a good run in the past month due to a depreciation in the rupee and prior underperformance. We see limited upside in the near-term,” Citigroup analyst Surendra Goyal said in a note to clients. “Over the medium term, we see moderate returns – driving our neutral recommendation,” he added. Goyal has a 12-month price target of Rs 2,650 on the stock.

Given the macro challenges, Goyal believes IT budgets for the calendar year 2012 will be the key to watch out for Infosys. He expects clarity to emerge by January 2012.