Can NRN magic help Infosys reclaim bellwether tag from TCS?

A slew of changes have been seen ever since NR Narayana Murthy came back at the helm of Infosys. Decision-making has been centralised keeping in mind client needs and also market changes, top level has seen a change of cast, and experts are again going gung-ho over the prospects of the IT giant.

A good performance in the first quarter made analysts sit up and say that Infosys is back; now after the Q2 results the theme has just got louder.

Of course, the impact on the stock has been evident after the return of Mr Murthy. “The stock has gone up a little bit too sharply post Mr Murthy taking charge. Expectations are high,” says Mehraboon Irani of Nirmal Bang Securities.

Surely, the NRN factor has helped the company gain investor confidence. The stock has rallied about Rs 1,000 since July this year.

“This time is for real,” brokerage BNP Paribas wrote in its earnings report, referring to investors’ long wait for a sustainable revival in the fortunes of the company that lost its bellwether status after a series of disappointing quarters, reported Economic Times.

Brokerages look more than eager to up their ratings on the stock.

“Going forward, we expect Infosys’ operating margins to improve further. With the current set of results, clearly the stock has got rewarded and we expect further re-rating of Infosys after two consecutive quarters of healthy performance. We recommend accumulate rating on the stock,” said Ankita Somani, Research Analyst-IT at Angel Broking.

Going a step ahead, HDFC securities says that it sees scope for a further re-rating in Infosys and expects the firm to narrow its valuation discount with TCS (which is currently at 16 per cent).

All said and done, comparing Infosys with TCS, which crossed the $1-billion revenue mark ahead of the former, Infosys is way behind as far as market cap goes. Infosys has a market cap of Rs 1,87,999 crore against Rs 4,15,723 crore of TCS, as on October 11, 2013.

Talking dollar revenues, this quarter, the same for Infosys grew by 3.8 per cent quarter on quarter, slightly above expectations.

In fact, the company revised its USD revenue growth guidance for FY14 to 9-10 per cent from 6-10 per cent earlier.

“We expect the dollar revenue growth in FY2014 to be over 11 per cent for Infosys,” said Ankita Somani, Research Analyst-IT at Angel broking.

TCS has been beating Infosys in dollar revenues more than often in the recent quarters.

Will Infosys regain its IT bellwether tag over the next few quarters? Well, how it pans out from here will become known when TCS announces its Q2 results on October 15 (Tuesday).