Retail shareholders, employees lose interest in Infosys stock

BANGALORE: Shares of Infosys, once a preferred savings instrument for the Indian middle-class, especially in the South, are falling out of favour with the investing public as evidenced by the fall in retail shareholding in the Bangalore-based software exporter.

Non-institutional investors, or retail shareholders, held about 23% equity in Infosys a year ago but that has now come down to about 15%. In 1999, the heydays days before the dotcom crash, nearly half of Infosys' equity was in the hands of retail shareholders.

Market experts say that the fall is due to large individual investors deserting, besides employees with stock options selling out in response to the company's relative underperformance against rivals.

"For quite some time now, the return on Infosys shares have left much to be desired, and that could have prompted some high net worth individuals to take a sell call on the stock," said veteran investor and market analyst SP Tulsian. "With Infosys lagging behind the industry for about a year or so, investors probably moved to a less risky IT stock.

"That is a far cry from the days when Infosys was revered because owning the stock touched the lives of many middle-class families thanks to the returns that the stock gave. Stories abound of children sent for studies abroad and marriages done with the return on investments in Infosys shares.

Shares of the company have fallen nearly 20% over the past year compared to a 5% fall in the broader index.

The decline in retail shareholding at Infosys, once a sector bellwether but now in the throes of a transformation, may also have to do with to selling by employees with stock options, said Nilesh Shah of brokerage Axis Direct.

Over the past year or so, Infosys has struggled to match its peers in revenue growth and has on multiple occasions delivered performance below its own forecast. Repeated under-performance has shaken market's faith in the company that was once a gold standard in consistent and predictable financial performance.

After the June quarter, Infosys also stopped giving quarterly financial guidance, blaming lack of adequate visibility on near-term growth on account of ongoing economic uncertainties in its largest markets - Europe and the United States.

"They (employees) may have sensed the changing fortunes of the company and consequently sold out early," said Shriram Subramanian, founder and managing director at corporate governance advisory InGovern.

Rivals such as Tata Consultancy Services and HCL Technologies have meanwhile become preferred stocks among analysts as both the companies have delivered industry leading growth during tough market conditions. Compared to Infosys, the managements of TCS and HCL have been more bullish and optimistic in their commentary on demand for information technology services.

However, a quarter or two of robust financial performance can turn the tide for Infosys shares, according to Tulsian.