Posted June 13, 2014 12:45 am by Comments

The appointment of SAP’s Vishal Sikka as the CEO of Infosys (NYSE: INFY) clears up some uncertainty for investors, but an article in The Economic Times says that it will be a long haul before any meaningful recovery can be seen with the stock (Please also see: Indian Media Reactions as Infosys Names SAP’s Vishal Sikka as CEO; and do note: I have been an Infosys shareholder for several years now and have no plans to buy or sell any shares).

More specifically, they have collated five possible reasons why Infosys will remain subdued in the short term, but remains a good long-term bet:

1) Building the right team. According to former Infosys Board Member V Balakrishnan:

“Rebuilding the team will be a major challenge for him since the core team has left the company. Vishal has to build his own team and that is very important because one person cannot change a large company like Infosys… He also has to quickly connect with the clients and give them comfort, because clients have been worried since the leadership transition took a long time.”

Ajay Srivastava of Dimensions Consulting also added:

“…the board also needs to get reconstituted in a manner that it has more independent ‘directors’ than what it has had at this point of time.”

2) Brokerages are positive despite near-term concerns.

3) May lead to more senior-level exits. Ankit Pandey of Quant Broking believes there is still some uncertainty that will remain over the next three to four months as more people may decide to leave. However, experts also say that after the transition, the organization will likely stabilize.

4) Slowdown in growth likely to continue. Although Sikka will bring in fresh thinking to Infosys as a technology visionary, he is an outsider and it will likely take him time to figure out the company’s issues, culture, ways of working, politics and competitive landscape plus complete the onerous task of rebuilding a team. This will take time to do and show results.

5) Sikka will be instrumental in boosting sales. Sikka’s strong client relationships can help Infosys win business with new and old customers and improve revenue growth. However, a Deutsche Bank research report has noted Sikka’s products background and then expressed some concerns over his ability to run a services company.

To read the whole article, Want to bet on Infosys? Five reasons why you should wait and watch, go to the Economic Times.

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