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STOCK MARKET - Infosys rallied 3% to Rs 988 levels on the Bombay Stock Exchange (BSE) in intra-day trade on Monday, after the its board appointed Salil S. Parekh as its chief executive officer and managing director (CEO & MD) for a period of five years effective January 2, 2018.While markets gave a thumbs-up to the development, analysts say Infosys still has a long road to recovery. Parekh, they say, has his task cut out in terms of turning around the business at a time when the information technology (IT) sector is undergoing a transformation. That said, the appointment does end the market’s anxiety as to who the new CEO, but the strategies he adopts will take time to reflect on the financials, they say.
“The markets will heave a sigh of relief that the wait for a new CEO has not been too long. The overhang for the stock as regards this concern will be over. Going ahead, one needs to understand the business strategy that the new incumbent will unveil to put Infosys back to industry growth rates before taking a long-term view on the stock,” says Ajay Bodke, CEO and chief portfolio manager (PMS) at Prabhudas Lilladher.
Bengaluru headquartered Infosys had reported a 3.2% year-on-year (y-o-y) rise in its September 2017 quarter net profit to Rs 3,726 crore, but cut its FY18 growth guidance in constant currency terms to 5.5 – 6.5% from the earlier forecast of 6.5 – 8.5%.
Analysts at Antique Stock Broking, too, believe with the announcement, things will return to normalcy for Infosys and the focus will be back on growth. Infosys needs stable leadership with steady growth trajectory to bridge the almost 20 – 25% price-to-earnings (P/E) valuation discount with TCS, it says.
“Though Infosys may still have to manage with some leadership churn with the CEO appointment, we believe Mr. Parekh's appointment will bring an end to the feud between the founders and the board and the subsequent changes,” analysts at Antique said in company update note.
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