Infosys rallies 8 percent as Narayana Murthy takes charge, hits Rs 2600

 InfosysBSE 6.87 % rallied over 8 per cent in morning trade on Monday to hit its psychological level of Rs 2600, after the country's second largest software services major Infosys on Saturday re-appointed NR Narayana Murthy as its executive chairman with immediate effect to put the company back on high growth path.

Infosys on Saturday announced that the company's board has appointed N R Narayana Murthy as Executive Chairman of the Board and Additional Director with effect from June 1, 2013.

The move is aimed to strengthen the leadership and put the company back on high growth path.

At 09:20 a.m.; Infosys was trading 7 per cent higher at Rs 2574. It hit a low of Rs 2524.80 and a high of Rs 2624.90 in trade today.

According to analysts, Murthy's appointment is positive for the company; however, the IT major has to still do a lot of work before it can regain its leadership position.

The decision of the Infosys management to get back the father figure at the helm of affairs will clearly send out positive vibes across shareholders, say analysts.

"As the company struggles to beat expectations, this unusual change is definitely a positive for the stock price," said Shardul Kulkarni, senior technical analyst at Angel Broking.

"While it is obvious that a gap up opening will be seen in Monday's trading session, the sustainability of the pullback is difficult to assess at this juncture," he added.

According to Kulkarni the stock may test Rs 2500/2592 levels in the coming week on the back of positive news. However, it must be remembered that in the short term, the market focuses on sentiment, while in the longer run it is only earnings that create shareholder wealth.

With Mr. Murthy back in business with Infosys, analysts expects things to turn around for India's second largest outsourcer as he knows the industry well and one can be hopeful that he can bring in right strategy for more client acquisition as he comes back.

"We think the return of NR Narayana Murthy to an executive role after 7 years may boost long-term investors' confidence in the company," Goldman Sach said in a report.

"However, given lower IT growth and a more intense competitive landscape, we will wait to see how Iny changes its strategy to return to a growth path," added the brokerage.

However, Kotak Institutional Equities upgraded the stock to 'ADD' from 'REDUCE' and raised its 12-month forward target price by 12 per cent to Rs 2,750 from Rs 2,450 earlier.

"The upgrade does not signal a change in our stance on competition and profitability challenges Indian IT faces, but takes into cognizance lack of quality investible names in the Indian market," said the brokerage firm.

The relatively inexpensive valuation of Infosys and currency-led earnings protection makes the IT major more attractive. The induction of Mr Narayana Murthy in an executive role boosts management strength, Kotak said in a note.