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Narayana Murthy back at Infosys: What it means
N R Narayana Murthy is back from retirement. On Saturday, Infosys announced that the man who galvanised the Indian IT sector will return as Executive Chairman. He joins the global list of executives - some successful like Apple’s Steve Jobs, and some unsuccessful like Yahoo’s Jerry Yang.
Infosys’ shares jumped 9% last Monday soon after trading began for the week. On a day when both benchmark indices – Sensex and Nifty – saw deep cuts, Infosys ended with over 4% gains. This is the faith investors have in Murthy, who successfully steered Infosys for almost three decades.
However, considerable challenges lie ahead. Here are pointers that explain the situation at the most widely tracked company in the stock market:
Infosys has underperformed in the IT sector the last few quarters. In terms of revenues, it has been overtaken by Cognizant and pushed to the position of the third largest software exporter in India. Infosys has also given a poor annual forecast for revenue growth of 6-10% for 2013-14, much slower than the 12-14% expected for the sector. At such a time, Murthy’s re-entry could see the focus shift to growth, which would hinge on the ability to revive sales and take on competition. The company launched its Infosys 3.0 strategy with fan-fare suggesting a partnership with customers. Murthy will have an added task of communicating its strategy to customers.
Execution of strategy
Murthy has not given any statements about what his strategy could be. But, according to Kiran Mazumdar Shaw, chairperson of Biocon and a family friend, Murthy has been concerned about the execution of strategy. It is expected that this could be a focus area going forward.
Morale boost for employees
Whether Murthy manages to turn around the lagging company or not, one thing is for sure – a ‘father figure’ leading the company will definitely raise employee morale. The once-favourite destination for IT graduates is struggling with high attrition of 16.3%, which hit a 10-year high in the March 2013 quarter. Attrition is the rate of reduction of workforce.
Rohan Murthy, who has a stellar academic record—Cornell, MIT, Harvard, joins his father. He is a significant shareholder in the company. With a PhD in Computer Science from Harvard University, junior Murthy’s presence would ensure that his father is up-to-date with current trends. Rohan’s entry has raised fears about a possible stage being set for dynastic culture in Infosys that has long maintained that family members have no place in the company.
Murthy’s return has revived investor concerns of conservative management culture and over-reliance on its founders. So far, all top positions have been held by Murthy and co-founders like Nandan Nilekani, Kris Gopalakrishnan and S D Shibulal. Analysts also say that the external business environment has changed significantly since Murthy left his executive role seven years back. The environment remains challenging due to the US Immigration Bill and no material revival in spending by US companies on IT services.
According to BSE data, Rohan Murthy has 79,49,782 Infosys shares, worth Rs 1957.31 crore as of Tuesday’s closing price of Rs 2462.10. This is more than father Narayan Murthy’s 23,79,672 and mother Sudha Murthy’s 73,14,660 shares. Akshata Murthy, Narayan Murthy’s daughter, owns 81,06,412 shares. Among other promoters, executive vice-chairman S Gopalakrishnan’s wife – Sudha (1,22,94,625) has the maximum number of shares.