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Business News/ Markets / Mark To Market/  What top exits at Tier-1 IT companies mean for their shares
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What top exits at Tier-1 IT companies mean for their shares

While such developments can lead to a knee-jerk stock reaction, a re-rating or de-rating for the company depends on execution of growth plans and trends in key business metrics

Rajesh Gopinathan, managing director and chief executive officer at TCS stepped down from his position. (PTI)Premium
Rajesh Gopinathan, managing director and chief executive officer at TCS stepped down from his position. (PTI)

Tata Consultancy Services Ltd (TCS) on Thursday said Rajesh Gopinathan, managing director and chief executive officer had resigned, a move that has come as a surprise. K Krithivasan, the global head - BFSI, has been appointed as TCS's CEO designate. In reaction, the TCS stock was trading flat on Friday, down 0.5%.

"Mr. Gopinathan’s departure from TCS is surprising, as he has led the company for only six years and was expected to continue for the long term given his age (52 years)," said analysts at Motilal Oswal Financial Services Ltd. Moreover, while the company’s growth has trailed peers like Infosys recently, it has handled external pressures, including a transition to digital delivery and the covid impact relatively well despite its size, added the Motilal Oswal report.

Earlier this month, close competitor Infosys Ltd also saw Mohit Joshi's exit who has been appointed as CEO designate at another IT largecap Tech Mahindra Ltd. Note that this is the second biggest exit at Infosys following the resignation of Ravi Kumar in October. Kumar is the CEO at Cognizant.

"We think the loss of two top leaders, who were virtually number 2/3 in Infosys and who had been the face of Infosys to many of its customers for a very long time, has been seen as a negative and is reflected in the weak stock price performance in recent days," said analysts at Nirmal Bang Institutional Equities in a report dated 17 March.

While such developments can lead to a knee-jerk stock reaction, a re-rating or de-rating for the company depends on execution of growth plans and trends in key business metrics. In the case of Tech Mahindra, the Street welcomed the appointment of Joshi, since the lack of clarity on succession was seen as an overhang for the stock. Currently, the risk of a potential recession has soured investors sentiment towards the sector, with the Nifty IT index falling around 19% in the last one year. The recent collapse of the Silicon Valley Bank had added to the nervousness among investors. Against this backdrop, execution of plans could be challenging for incoming CEOs.

According to Nirmal Bang, while the new CEO at TCS does not have internal challenges and has to focus on demand, Tech Mahindra’s new CEO has some daunting. "Not only does he have to face a hostile demand environment over the next 12-18 months, but he has a lot of work to do internally to get the organization to match peer set margins," added the Nirmal Bang report.

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Published: 17 Mar 2023, 11:25 AM IST
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