Will Infosys’s safe bet Salil Parekh prove to be unexciting for investors?
Salil Parekh seems to have ticked all the boxes the company had in mind for its new chief executive officer (CEO). As this Mint report points out, Parekh was even willing to relocate to Bengaluru, or “closer to the Infosys family”, as one senior analyst puts it tongue-in-cheek. In sum, “Infosys wanted to play it safe and take a conventional and conservative route,” suggests the report, citing executives familiar with the CEO search process.
But some analysts are worried that safe may also mean boring as far as returns go. “Parekh is an outsourcing industry veteran and can be expected to settle in smoothly in his new role... But can we expect him to be disruptive and shake things up at the company? I doubt that,” says the above-mentioned analyst who did not want to be identified.
Another analyst at a multinational brokerage firm adds: “You don’t get the impression he’ll come and disturb the status quo.”
Growth momentum has slowed in key geographies and verticals for the company. Besides global competitors such as Accenture Plc have marched ahead in digital capabilities, winning a greater share of customers’ IT spends. As such, Infosys is in dire need of leadership that more than just steadies the ship.
The silver lining for Infosys shareholders is that its top India-based competitors such as Tata Consultancy Services Ltd and Wipro Ltd appear to be playing it equally safe when it comes to choosing their leaders. But that’s barely any consolation. Unless the industry pulls up its socks, returns will remain pedestrian or even negative as in the past three years.
Of course, this is not to write-off Infosys’s prospects under its new CEO completely. One positive is that the company has a number of key positions vacant, and Parekh can capitalize on the opportunity by tapping other global leaders for these positions. A key requirement, however, will be to bet heavily on new technologies ahead of the curve, and the ability to take risks through mergers and acquisitions.
“The role of a CEO in Indian IT services business is to identify structural shifts in the technology landscape, take bets early on and back it with conviction. We await Mr Parekh’s views on the transformation roadmap for Indian IT,” analysts at Kotak Institutional Equities said in a note to clients.
Another positive is that Infosys has done well to find a new CEO just a few months after Vishal Sikka’s exit, thereby ending the uncertainty around its leadership. That was clearly the need of the hour, as the 2.7% rise in the company’s shares on Monday testifies.
But investors are an impatient lot. They will soon start measuring Parekh’s performance against a set of domestic and global peers. If he can keep investors happy, while being amenable to all other stakeholders, Parekh would have pulled off the impossible.
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