Relative Value

As the rupee tumbles, IT stocks including Infosys have continued to hit a new high every day. The NSE IT Index reached a record intra-day high of 15,087 on Thursday, gaining 34% this year, against the 12% rise in the benchmark Index. Infosys, a major contributor to the recent market rally, has also risen 34% in 2018.

Taking advantage of the rally, Gaurav Manchanda, son-in-law of Infosys’ co-founder SD Shibulal, sold 805,860 shares worth Rs 1.10 billion. Manchanda offloaded 0.04% of his stake between August 8 and August 10, bringing down his holding to 0.35%. Manchanda was gifted 8,573,973 shares on February 21. Along with Manchanda, daughter-in-law Bhairavi Madhusudan Manchanda who was gifted 3,972,980 shares on the same date also sold stock worth Rs 1.10 billion. 

While Infosys’ employees have overall sold shares worth Rs 0.41 billion in FY18, the promoter holding moved from 12.75% to 12.90% in the same period. That rise was a function of the Rs.130 billion buyback that the company completed in December 2017. In that buyback, promoters and employees tendered stock worth Rs.13.3 billion.

Even as Manchanda and Infosys employees cash in on the recent surge, analysts continue to repose their faith in Infosys despite weak June-quarter results. In Q1FY1, the company’s numbers were in-line with the estimates, but banking, financial services and insurance (BFSI) revenue and attrition rate continue to remain a concern. The revenue from the BFSI segment failed to register any recovery declining 0.2% (QoQ) with the management blaming top European clients for the drop in the BFSI revenue. 

Consolidated attrition also witnessed a sharp increase of 350 basis points to 23% despite the company announcing $10 million special bonus package for employees in April. The management chose to downplay the spike in attrition, saying that it was on account of seasonality and expects it to come down in coming quarters. The company’s net profit also dropped by 2% in June quarter to Rs.36.12 billion from Rs.36.90 billion in March 2018. PBIDT also declined sequentially falling 4% as compared to last quarter.  

While the analysts are bullish on the stock on the back of rupee depreciation and digital growth, FIIs don’t share the same enthusiasm. FIIs have reduced their stake to 34.87% in June 2018 from 37.53% in June 2017. But mutual funds have upped their stake to 11.66% in June quarter this year from 8.95% in June 2017. HDFC Mutual Fund has increased its stake from 2% in June 2017 to 2.80% in June 2018. ICICI Prudential MF and SBI MF, too, have marginally increased their holding to 1.81% and 1.74% respectively.