Bengaluru: Infosys Ltd needs to quickly win back the confidence of some of its largest foreign institutional investors (FII), who over the past 12 months have trimmed their holdings in India’s second largest information technology (IT) outsourcing company.
At least three of the company’s long-standing foreign investors, including Oppenheimer Developing Market Fund, Abu Dhabi Investment Authority, and Government of Singapore, have pared their holdings, even as FII holding in Infosys dropped to 35.24% at the end of March 2018 as against 38.31% at the end of March 2017, according to the company’s shareholding pattern.
Oppenheimer Developing Market Fund, which in February last year backed earlier CEO Vishal Sikka in a feud with promoter N.R. Narayana Murthy, now holds less than 1% in the company, the lowest it has held in Infosys. Both Abu Dhabi Investment Authority and Government of Singapore have cut their holding in Infosys, the lowest in more than a decade (see chart).
FII holding in a company is an important barometer of a company’s performance and their decision to either buy or sell a stock often influences retail or small shareholders, according to equity analysts.
FIIs reducing Infosys stake is in contrast with a surge in share price and market capitalization of larger rival Tata Consultancy Services Ltd. TCS shares have gained 40% in the period between 1 April 2017 and 20 April 2018 even as its market capitalization rose 33% to $98.53 billion. Infosys shareholders made a 16% return even as the company’s market capitalization increased 7.5% to $38.9 billion during this period.
At Infosys, FII selling has come at a time when domestic mutual funds have increased their holding to 10.6% at the end of the latest quarter from 8.33% at the end of March last year. Still, Infosys shares have lagged TCS, and even BSE-IT and BSE Sensex have gained more than Infosys.
Mint could not independently ascertain the reason behind these three FIIs cutting their holdings in Infosys, which since August has held at least half-a-dozen investor meetings in India, Singapore, Hong Kong and the US.
The latest such meeting was in Mumbai on Thursday, where Infosys chief executive officer Salil Parekh and chief financial officer M.D. Ranganath met investors.
A year-long feud at Infosys did distract the firm previously, impacting company’s revenue growth and profitability last year. Infosys managed to grow its dollar revenue by 7.2% at operating margin of 24.3% to end with $10.94 billion in 2017-18, lower than the 7.4% dollar revenue growth and a 24.7% operating margin reported in 2016-17. Both Sikka and non-executive chairman R. Seshasayee left Infosys in August last year, which according to two executives, is one reason behind some FIIs paring their holdings.
An email sent to Government of Singapore Investment Corp. seeking comment went unanswered while Oppenheimer Developing Market Fund and Abu Dhabi Investment Authority declined to offer a comment.
An email sent to Infosys on Friday went unanswered.