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Fund managers stock up on Infosys shares in August

LiveMint logoLiveMint 19-09-2017 Ami Shah

Mumbai: Mutual funds increased their stake in Infosys Ltd in August, when the company witnessed a whirlwind of developments with exit and reappointments at the top level, which led to steep volatility in the stock.

The country’s third-largest software services exporter was the third-most bought stock by mutual funds in August as they raked up a net of Rs1,527 crore of its shares in the month. NTPC Ltd and Housing Development Finance Corp. Ltd, were the top buys in the month by domestic asset managers, preceding Infosys.

Infosys was the most-held IT stock by fund managers at the end of August, and was the only stock in the sector to feature in the top 10 stock holdings of domestic mutual funds by market value. Mutual funds collectively held Rs20,157 crore of Infosys shares at the end of August.

Domestic institutional investors (DIIs) pumped in a net of Rs15,695.51 crore in Indian shares in August, the strongest such inflow since November, as they opted for equities through mutual funds, after lower interest rates prompted them to look at other avenues for investing.

Index heavyweight Infosys was picked up by investors when the stock saw a sharp decline after Vishal Sikka resigned as the CEO of the company. Things stabilised for the stock, after founder Nandan Nilekkeni returned as the chairman of the company.

On 18 August, Sikka announced his resignation as the CEO of the company, triggering a stock plunge that eroded Rs34,000 crore off the company’s market capitalization in two trading sessions, driving the stock to its lowest level in three years.

On 21 August, Infosys stock closed 5.37%% lower at Rs873.50 on the BSE, its lowest close since 11 August 2014.

“The correction in the stock was used as an opportunity to buy by the fund managers. Infosys stands out from the larger IT pack, and has historically enjoyed a favoured position with asset managers,” said Kaustubh Belapurkar, director of fund research at Morningstar Investment Adviser India Pvt. Ltd.

On 22 August, Infosys shares hit a low of Rs861.50 a share, a level last seen on 4 August 2014, but have recovered 5.6% since then. For the month of August, the stock had eroded 9.5%.

“Managers are taking the view that the fundamentals of the company are intact and things should get in place at the board level going ahead,” added Belapurkar.

Even prior to the developments, domestic as well as overseas mutual funds had raised their stakes in Infosys from a year before at the end of July, indicating that the company, which was once termed at the IT bellwether, was the preferred bet in the otherwise out-of-favour software services sector, Mint had reported on 21 August.

Meanwhile, Goldman Sachs upgraded the stock to “neutral” from “sell” on 17 September, pointing that after stock correction in August, Infosys’s valuation on a price-to-book basis has tumbled to a 10-year low.

“We believe the de-rating was led by uncertainty on strategic direction post the CEO/board member departures mid-August and concerns that Infosys could cut annual growth guidance,” Goldman Sachs analysts Sumeet Jain and Saurabh Thadani said in a note.

“While we expect sales/margin pressure to persist, with 12% implied downside to our 12-m target prices vs. coverage average of -6% and the shares trading in line with peers, the risks look largely priced in and we upgrade Infosys to Neutral from Sell,” they added.

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