Infosys shares bounce back to pre-whistleblower allegation levels

Infosys shares bounce back to pre-whistleblower allegation levels
Photo Credit: Reuters
13 Jan, 2020

Bengaluru-based information technology (IT) services firm Infosys' shares gained nearly 5% to close at Rs 773  at the end of trading on Monday on the Bombay Stock Exchange (BSE). The rally came two days after the company’s CEO Salil Parekh was given a clean chit on allegations leveled by a whistleblower group late last year. 

At today’s closing price, the IT company’s shares have bounced back to pre-whistleblower allegations levels. On October 18, the last day of trading before the whistleblower allegations surfaced, its shares had closed at Rs 767. The allegations came to light on October 21, which was a non-trading day. The next working day, on October 22, the company's share price plunged around 16%, significantly wiping out investor wealth.

The fast closure to the probe has helped the company to regain the confidence of investors, Sanjeev Hota, vice president and head of research at Sharekhan said.

The turnaround also comes on the back of industry-leading growth rates in revenue and profits while slowing down its attrition rate. In fact, the company had revised its growth projection for the current financial year twice. The company's deal wins and growth in digital business also contributed to the gains in the share price.

"The continued strength in large deal wins despite a cautious environment and the revenue growth guidance upgrade have meaningful undertones. It indicates business as usual at Infosys despite the whistleblower related distractions. There were neither any negative client repercussions nor has the time taken for large deal sign-offs increased due to this episode," said brokerage house Motilal Oswal in a report on Monday.

What is also notable is that since Parekh took charge as CEO two years ago, the company has once again taken the lead over rivals as the bellwether of the Indian IT services industry. During the first half of the last decade, the company consistently trailed Cognizant and Tata Consultancy Services.

While the whistleblower allegations are behind the company, with several regulatory probes simultaneously in progress, in India as well as the US, it will be some time before the company can put the latest whistleblower episode to rest.

Infosys also has benefitted from the strategy of ramping up its US presence with its headcount in the country crossing 10,000 last year. While this has dented the operating margins, it has helped the company overcome the visa-related challenges that Indian IT services firms have faced, analysts said.

Even as the technology landscape changed, the company was ready with a digital strategy. "A steady increase in the share of revenue from digital across verticals with the shift of enterprises toward digital services continue to be the key growth driver even as this was accompanied by a secular decline in the share of revenue from the core services with vertical-specific headwinds continue to be the key growth challenge," said Motilal Oswal in the aforementioned report.