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Foreign institutional investors (FIIs) might be complaining about Infosys Technologies' continued weak financial performance, but they continue to accumulate shares of the Bangalore-based information technology (IT) major. In fact, the firm is still their most preferred bet among the top-tier IT firms in India.
In the quarter ended March 31, FIIs have raised their stake in the country's second-largest software services exporter to 39.02 per cent from 37.36 per cent, shareholding data available on the Bombay Stock Exchange (BSE) website showed. This was the highest increase in terms of percentage points among the top IT firms listed on Indian bourses in the January-March quarter.
Analysts at some leading foreign brokerages have been extremely critical of Infosys after the company significantly missed its revenue guidance for the January-March quarter and gave a lower-than-expected revenue growth outlook for 2012-13.
CLSA's IT analyst, Nimish Joshi, even wrote an open letter to Infosys chief executive officer (CEO) S D Shibulal, expressing the anguish of the company's institutional investors. "The divergence in actual performance and guidance over the last 18-24 months has meant that investor confidence in your guidance has gone down. The big miss in the latest quarter has only served to further that sentiment. I hope the recent miss was a blip after 47 straight quarters of meeting quarterly guidance," Joshi said in his letter.
Joshi also said he was presenting the collective dismay of over 100 institutional investors, who have about $15 billion invested in Infosys, post the company's fourth quarter (Q4) results on April 13.
For FIIs looking to invest in Indian IT companies, preference inevitably falls on Infosys and Tata Consultancy Services, says Equirus Securities CEO Bhavin Shah, who has tracked the Infosys stock since 1996.
"Notwithstanding the subpar growth of Infosys in the last few quarters, it has an impeccable track record of corporate governance and a very long history of rewarding investors. This reduces the unknowns for foreign investors," said Shah, who was heading Asia-Pacific technology research at JP Morgan prior to joining Equirus in February 2010.
Shah, who is underweight on the IT sector, believes there might be some shift by FIIs in the present quarter from the Infosys counter, due to the guidance it has given.
Infosys shares, which last closed at Rs 2,396.8 on the BSE, have slumped nearly 13 per cent since the announcement of its Q4 results. The BSE benchmark, Sensex, has declined 0.84 per cent during the same period.
According to Bloomberg data, of the 72 analysts tracking the Infosys stock, 36 have a 'buy' rating, while 29 rate it a 'hold'. Just seven analysts have a 'sell' recommendation on the stock.
Analysts who are positive on the Infosys stock believe the sharp correction after Q4 results has made valuations reasonable. According to Mumbai-based brokerage Prabhudas Lilladher, the Infosys stock is currently trading at 12.1 times 2013-14 earnings estimates, one of the lowest valuations that the company has witnessed since the Lehman crisis.
"The business fundamentals are still sound. Their ability to win deals or win clients is not under doubt," said Shashi Bhusan, senior research analyst (institutional equities), Prabhudas Lilladher.
Bhusan, who reiterated a 'buy' rating on the Infosys stock after its Q4 results, has a price target of Rs 2,940.