It remains to be seen how the markets and analysts will react to the news that NR Narayan Murthy, one of the founders and former chief executive of Infosys returning to the company in the capacity as Executive Chairman. Not only that, he has appointed his son Rohan Murty (His son spells his name minus the ‘h’) as his Executive Assistant.
Infosys, the former darling of India’s Information Technology sector has not been having a good time of late, as several analysts pointed out, the company’s results of late have been bolstered by a weak rupee. The founders of Infosys have played musical chairs with the chief executive’s post for the past few years although its current occupant SD Shibulal did attempt to transform Infosys, a transformation with greater emphasis on services and result-oriented projects called Infosys 3.0.
So, the obvious question is whether the return of the prodigal, if a 66-year old can be called a prodigal will change thatIJ Indications are that his return will give shareholders some succor, with several reports emerging that Infy will test new highs once the markets open on Monday. Yet, while no-one wants to criticize Mr Murthy, bringing him back highlights the lack of ideas both at the company and of the board.
The IT services marketplace has changed dramatically since 2006, when Murthy left the same position he has taken over now. That was before the lingering global economic downturn of the past half-decade in the Western world. That was also before the dramatic rise of Cognizant Technologies, an American-headquartered but Indian-based IT services company. This fact has also been recognized by investors, in the past five years, the return on Cognizant (listed on the NASDAQ) has been 83.25 per cent, whereas Infosys’ American Depository Receipt (also listed on the NASDAQ) has fallen 14.99 per cent.
This is because of a fundamental difference in the way that Cognizant operates, it looks at smaller value deals. The sort of deals that the ‘Big’ players such as TCS, Infosys and Wipro ignore. But on the back of these deals, where Cognizant realized that they will not have the juicy margins the ‘big’ companies were used to in the early-200’s but will grow the company’s top-line significantly, it has become the second-largest ‘Indian’ IT services company behind TCS.
Chasing small fry may mean it takes a lot of sales and a lot of effort to grow big, but to borrow an analogy from the animal kingdom, the world’s biggest living creature, the Blue Whale eats some of the smallest, tiny crustaceans called krill. It might be a long time before Cognizant overhauls TCS, but unless Infosys changes its thinking and decides that they like Cognizant will have to go after smaller deals, it might be condemned to remain number three. Given the global slowdown and lower billing rates, I have some personal doubts whether Mr Narayana Murthy can really turn things around.
On another note, much has been made of Rohan Murty joining his father and the fact that a truly ‘independent’ board would have prevented that. Infosys, while it has always been run by a small cabal has never been seen as a ‘family firm’, unlike TVS the company where the younger Mr.Murty’s wife, who is the daughter of the promoter works. In an ostensibly non-family company, this is an ethical issue, but Infosys needs all the ideas it can get. If Rohan Murty can provide those ideas, maybe in retrospect it can be seen as a smart move, but for now, it remains a controversial move.