What makes Infosys tick despite 8 top-level exits in 6 months?

On December 20, when Infosys announced the resignation of director and former chief financial officer V Balakrishnan, it was not just the eighth big exit in six months but also meant the second of the company’s three chief executive officer contenders was calling it quits.

Besides the headline-grabbing high-profile exits the information technology giant has seen, scores of junior employees, too, have moved out since N R Narayana Murthy’s return at the company’s helm in June.

To an outsider, the exits could signal turmoil and, perhaps, even trouble. But, Infosys, on the contrary, seems to be back as stock markets’ darling.

Before the announcement of Balakrishnan’s exit that day, the stock of Infosys — a company that had been stripped off its bellwether tag and written off by market watchers not very long ago — had hit its life-time high of Rs 3,552.30 on BSE.

What drives the market’s confidence in Infosys? Does it stem from the trust marketmen have in Murthy’s ability to turn the company around? Or, does it come from the talent still available within the company — at Tier-II and -III levels — that could make up for the loss at the top? Or, something else that continues to make Infosys a good bet for investors?

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Most would say it’s a combination of all of these factors. The investor community has a ‘blind’ faith in Murthy, while Infosys itself has enormous talent. Also, the escalation of young professionals — most of them in their 30s — is seen as part of the strategy to make the company leaner and meaner.

However, rivals and insiders say the real impact of the current exits will be felt after at least a couple of quarters. In the short term, the state of turmoil in the company is being masked by a bull run in the Indian stock market, which is near its all-time high.

Also, Murthy is getting enormous help from an upbeat US economy and technology spending that has been the highest in at least three years.

Murthy’s return might have brought back investors’ interest in the company but, data suggest, other IT stocks have been favoured more than the Infosys scrip.

Since June, shares of Infosys have risen over 41 per cent on BSE, while rival Tata Consultancy Services’ stocks has gained 44.1 per cent. The BSE IT index has risen nearly 48 per cent during this period.

“The stock price touching a life-time high doesn’t reflect the true picture. What really matters is market capitalisation,” says an industry expert critical of the company’s leadership strategy.

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TCS’ market cap, less than Infosys’ five years ago, is now double that of Infosys. “From a great company, Infosys will become like just another company, unless its internal issues are fixed fast,” said the critic.

Over the past week, TCS added Rs 22,849 crore (Rs 228.49 billion) to take its market capitalisation to Rs 4,15,162 crore (Rs 4,151.62 billion). In comparison, Infosys’ market cap increased Rs 10,247 crore (Rs 102.47 billion) to Rs 2,03,985 crore (Rs 2,039.85 billion) during the week.

Experts also say, with the current flux, Infosys may be in for a double loss — a large chunk of its talent base is joining rivals. “People are moving away with corporate knowledge and at the prime of their working career,” said the expert quoted earlier. “Half of them are good people; it will hurt the company.”

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Chief executive of a rival firm says the people Infosys has hired as replacements are not “rookies” and can be banked upon, but the timing of the change may cost the company dear.

“The replacements will take at least two quarters to settle into their roles. And, at a point when demand is on the rise and everyone would want to get the lion’s share of business, Infosys might miss the bus.”

Market's darling?

Jun 2013: Founder N R Narayana Murthy returns to the helm of affairs at Infosys

Eight: Resignations from top executives of the company since June (besides several junior employees)

Rs 3,552.30: Infosys stock’s life-time high, at close of Friday’s trading on BSE

41%: Rise in Infosys share price since Murthy’s return — lower than the BSE IT Index’s 48% and rival TCS’ 44.1% surge during the period

M-cap: Over the past week, Infosys’ market capitalisation has risen Rs 10,247 crore (Rs 102.47 billion) to Rs 2,03,985 crore (Rs 2,039.85 billion). In comparison, TCS has added Rs 22,849 crore (Rs 228.49 billion) to take its market value to Rs 4,15,162 crore (Rs 4,151.62 billion)