Why Infosys’s downfall makes us sad

Summary:Infosys stands for a lot more than just the boom in outsourcing and Indian IT. It stands for creating wealth amid the middle class, for values and high corporate governance norms. That's why its disappointing results mean more than just the numbers.

The morning newspapers carry news about a 25 percent rise in the fourth quarter net profits of the Indian IT bellwether  Tata Consultancy Services (TCS) and a 73 percent increase in the net profit of HCL Technologies for the same quarter. Many of us would have heaved a sigh of relief. All is well with Indian IT, after all.

In recent times, the sentiments these quarterly results generate have had a huge impact on lives of those who rely on the IT sector for their livelihood, in some form or the other. And Infosys's (till recently the bellwether of Indian IT) results have a huge role to play in the general sentiment for the IT industry.

Infosys's earnings this quarter were rather disappointing. As usual, there was a lot of analysis in the media. But this time, there were more serious concerns.

Just two days back, a news report in The Economic Times said it could be a potential acquisition target. The logic: its market cap is down and it is sitting on piles of cash and liquid assets. In fact, a fifth of its market cap is now represented by cash and liquid assets. So logically, this cash pile reduces the enterprise value or the "price" the company wanting to acquire Infosys would have to pay.

Personally, I do not believe that Infosys could be a target for acquisition. A lot of Indian companies have been in a similar situation in the past. And they have not been gobbled up. It's not all that easy to acquire a company, and definitely not a company the size of Infosys.

However, the management's inability to deliver results like its peers, TCS and HCL in particular, does raise concerns. Infosys began the new year by posting stronger-than-expected profits for the October-December 2012 quarter. But it seems that the worst may not be behind Infosys as yet.

For many middle-class Indians, like me, that's not good news. Many of us have grown up reading stories of how Infosys was formed in a garage; how co-founder Narayana Murthy generously gave employee stock ownership plans (ESOPs) to all his employees (including his driver) and created millionaires; how the company was committed to corporate governance and how it beat analyst expectations quarter after quarter and became the favorite stock of investors in both India and abroad.

Over time, it became much more than just an IT company. It stood for values, it stood for giving more power to its people. It became an icon. So one only hopes that this is just a passing phase, and Infosys will spring back, and soon.

Because in the case of Infosys, there is much more to its disappointing results than just the numbers.

Topics: Outsourcing, India, Tech Industry

About

Swati Prasad is a New Delhi-based freelance journalist who spent much of the mid-1990s and 2000s covering brick-and-mortar industries for some of India's leading publications. Seven years back when she took to freelancing, India was at the peak of its "outsourcing hub" glory and the world of Indian IT, telecom and Internet fascinated her.... Full Bio

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