Why Infosys has lost its industry bellwether status
BENGALURU: Foreign institutional investors’ (FII) ownership of Infosys Ltd dropped to 34.87% at the end of June 30, the lowest since March 2009, marking the souring of overseas investors’ love affair with the company.
Bengaluru-based Infosys has been the bellwether information technology firm in India despite not being the largest in the industry, partly because the country’s second-largest software services company set new standards in corporate governance in India, higher profitability and its scorching growth pace in the noughties and many years before that. Tata Consultancy Services Ltd (TCS) was the biggest Indian IT firm, while Nasdaq-listed Cognizant Technology Services Corp. clocked the fastest growth for most of the last decade.
Infosys’s current attrition level of 20.6% is the highest in its history while its 23.7% profitability is the lowest, making it a daunting task for both non-executive chairman Nandan Nilekani and chief executive officer Salil Parekh to return the company to its former glory.
Still, four reasons explain why Infosys was considered a bellwether for the Indian IT industry.
First, Infosys’s higher profitability than peers on account of differentiated solution offerings always helped it earn more money. Second, Infosys was always considered to be an aspirational employer. Third, the management and board’s focus on corporate governance norms made many large foreign investors and analysts take note. Understandably, Infosys came to be the preferred bet among foreign institutional investors as they owned between 40% and 50% of the company for much of the past seven years.
However, Infosys has lost some of the sheen on all four counts. “Behind the headline numbers, there is a bigger challenge faced by Infosys. Two of the most important ones is how can the company retain its differentiated solution offerings and retain talent,” said a Mumbai-based analyst with a foreign brokerage on condition of anonymity. “Once the company gets this sorted, FIIS will surely find merit in investing in the company. For now, it has lost its mojo or so to say the bellwether tag.”
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