NEW DELHI: Infosys audit committee's clean chit to the top leadership, including CEO Salil Parekh, in the whistleblower case will likely give the company's shares a gap-up start on Monday.Analysts said a 5-10 per cent upside in the stock in the near term cannot be ruled out.The risk-reward looks favourable for Infosys, which trades at nearly 30 per cent discount to peer TCS, said HDFC Institutional Equities.
Brokerage Sharekhan valued Infosys at 18 times FY2020 earnings and its discount to TCS at 26 per cent.
It expects Infosys to narrow down this discount to some extent.But for the next 12-months, the key to the stock outperformance will be the performance of its BFSI vertical in March quarter, which will be the first quarter for most BFSI clients.
BFSI vertical accounts for over 30 per cent of the two IT firms revenues.This is especially valid in the year of US presidential election, analysts said.
Sameer Kalra, founder of Target Investing, says he is not surprised by the audit panel report.
"What matters more is how the case concludes with the US regulator and Sebi," he said.The scrip is up 8.6 per cent in last one year against Sensexs 15 per cent gain and a 17.25 per cent rally in the TCS stock.Other than CEO Salil Parekh, anonymous complainants were also filed against CFO Nilanjan Roy for alleged financial malfeasance.
Infosys said it would keep cooperating with the investigations by the US Securities and Exchange Commission (SEC) and Sebi, but refrained from putting a timeline for the conclusion of this investigation.We are in constant touch with all the regulators and other agencies.
We are giving them full cooperation and we are keeping them fully up-to-date.
And we will take those discussions to the logical conclusion.
So, I would not like to make any conjecture, Nandan Nilekani, non-executive CEO said.Yet, a short-term reaction on the counter is near certain.
Infosys' American depository receipts (ADRs) rose 1.62 per cent to $10.65 in overnight trade on Nasdaq.Sharekhan expects Infosys to outperform TCS in terms of revenue growth and gain market share in digital business.
It expects the stock's discount to TCS to narrow going ahead.Further, a clean chit in the whistleblower case would remove the overhang on the stock.
Hence, we maintain our 'buy' rating on the stock with a revised target of Rs 820, it said.Nirmal Bang Retail Research said client spend for CY2020 due to upcoming US elections would be a key thing to watch for in Q4 results.
"Currently, the management indicated there is no shift in the spend due to election but may happen during the year, the brokerage said.Nirmal Bang and HDFC Institutional Equities both see the audit panels clean chit as a key positive.Our positive outlook is based on a greater focus on large deals, pricing lever in digital space, completion of accelerated investment phase and multiple levers to keep margin steady, HDFC Institutional Equities said.Kalra expects Infosys to outshine TCS in next 12-months but says the BFSI verticals performance in Q4 holds key to the stock movement.Infosys has upgraded its FY20 revenue growth guidance band to 10-10.5 per cent in constant currency terms from 9-10 per cent earlier.
It has maintained its EBIT margin guidance at 21-23 per cent for the year.