Infosys shares surged as much as 5 per cent on Monday, boosting investors’ wealth by over Rs. 9,000 crore, after the return of co-founder and former CEO Nandan Nilekani as non-executive chairman lifted sentiments. Mr Nilekani’s return will assure clients and shareholders that critical functions and strategies will continue, say analysts.
Nilekani’s “return to Infosys gives it the best start in six years in regaining leadership stability, strategic relevance and resolving cultural battles”, CLSA wrote in a note to clients. The brokerage raised its rating on Infosys to “buy” from underperform”. Another brokerage Jefferies said the appointment would likely lay to rest any issues with founders, helping client and employee retention at the firm.
Infosys shares had plunged sharply after the abrupt resignation of CEO Vishal Sikka earlier this month. In just two sessions, Infosys shares fell nearly 15 per cent, wiping out over Rs.30,000 crore of investors’ wealth.
The buzz of return of Mr Nilekani helped the stock gain some stability in the past few sessions. Mr Nilekani was named as chairman on Thursday, a move analysts say will help end the lengthy feud between the board and the company’s founders. But analysts also say that Mr Nilekani faces an unenviable challenge as he comes back to the Infosys fold, a decade since his departure.
“Nilekani has his job cut out clearly. He needs to get the employees and the management on the same page and get a CEO on board at the earliest,” market analyst Ambareesh Baliga wrote in blog post.
Mr Nilekani has already listed his top priorities in conference calls with investors and analysts: bringing stability, finding a CEO, and shaping future strategy. India’s second largest software services firm has named recruitment firm Egon Zehnder to help find a CEO who will be able to manage a large global firm, accelerate strategy execution and oversee its transformation.
The management reboot at Infosys comes at a time when the broader IT services sector has been challenged by slowing growth. It is now facing unprecedented challenges: the traditional outsourcing business faces a margin squeeze. Anticipated work visa changes in the United States, the biggest market for Indian IT firms, could also become a headache for the company.
“I think the challenges that Nilekani faces are the same as the challenges that Infosys faces, which are how do you steer the company through this transformation and how do you get growth,” said Malay Shah, a senior director at Alvarez & Marsal, who worked with Infosys during Mr Nilekani’s prior stint.
In a note to investors, global brokerage Nomura said Mr Nilekani’s appointment resolves the “overhang related to the tussle between the board and promoters”.
“The next moves in the stock are likely to be driven by near-term results and CEO selection and assessment of his/her ability to lead Infosys through the technological transformation facing the industry,” it added.