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Money Jun 4, 2013

Murthy’s return lifts Infosys stock, analysts skeptical about quick turnaround

By Firstbiz Staff

Infosys shares rose 7 percent today, as investors turned bullish on the stock after the board called back co-founder NR Narayana Murthy to steer the company through the current rough weather.

Experts have, however, raised doubts about whether Murthy will be in a position to take on the present day challenges as the IT market has under gone a sea change over the last seven years when he did not hold any executive role in the company.

"Infosys is suffering from lack of morale and cohesive direction to have that edge in a market where differentiation is harder than ever to achieve," Phil Fersht, CEO of HfS Research, has been quoted as saying in a report in the Times of India.

Infosys MD Shibulala with Narayana Murthy. AFP

Infosys MD Shibulal with Narayana Murthy. AFP

Here is what brokerages are saying about the stock:

According to a report in moneycontrol.com, Goldman Sachs has said that the "return of Murthy to an executive role after seven years may boost long-term investors' confidence in the company". However, the brokerage will wait and watch how the company changes its strategy to return to the growth path. It thinks the company's earnings visibility remains weak and maintains its neutral rating for the stock.

Morgan Stanley, meanwhile, expects Murthy's leadership to improve execution at Infosys. However, this will get reflected in the company's financials only in 6-9 months. "With Murthy's addition to the leadership team, the bottom for the stock is now behind it," it said. It also believes Murthy can help Infosys better navigate the uncertainty around US immigration issues.

Deutsche Bank, which has a hold rating on the stock, is of the opinion that Murthy is facing a lot more challenging this time around. This is because (a) he has been away from the executive responsibilities of the company for the last seven years and (b) the company's problems are structural rather than mere quarterly stumbles. However, his return will boost employee morale and investor sentiment in the short term, it said.

Merrill Lynch said Murthy will provide "much needed impetus in strengthening customer connect & (2) lowering employee attrition risk on improved morale".

Macquarie sums it up, saying "Positive news flow but no guarantee for success."

by Firstbiz Staff

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