Infosys - Return to the past may not herald a better future - Ambit

Infosys announced a leadership restructuring on 1 June, bringing back Mr. NR Narayana Murthy as the Executive Chairman. Whilst this is a positive change given the limited success that Infosys has enjoyed with its existing strategy and management team, we see three potential risks to the success of this strategic move: (a) business fundamentals are no longer similar to those seven years ago when Mr. NRN Murthy was the Executive Chairman, (b) client sentiment may from a lack of professional leadership, and (c) historical trackrecord of founder comeback has not been very exciting.

We remain concerned about Infosys's ability to effect a change despite this return because the company is likely to find it difficult to recover from its historical approach of doing business. Further, bringing back the founder suggests that the board lacks creativity. We urge clients to use the strength in the share price to lighten their holdings in Infosys.

We retain our SELL stance with a TP of Rs2,138 (15% downside).

Source : Equity Bulls

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