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Updated: 05/01/2009 | 06:26 PM IST
Satyam issue may benefit Infosys stock: Citi
Press Trust of India
Monday, January 05, 2009 (New Delhi)
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IT major Infosys is likely to benefit from the Satyam-Maytas deal fiasco and is expected to handle the downturn better than its peer group firms, a report by global financial major Citigroup has said.

According to the report, the stocks of Infosys look attractive and may gain from the problems at Satyam despite a challenging near-term outlook.

"Flight to safety is likely to continue given that scale (large scale) players are likely to fare better than smaller players in this environment, there is flight to better balance sheets and the recent issue at Satyam will likely benefit Infosys, from a stock perspective," the report stated.

Investor confidence in Satyam has been shaken after the country's fourth largest software firm's aborted $1.6 billion deal for acquiring two companies -- Maytas Infra and Maytas Properties -- promoted by family of Satyam chief B Ramalinga Raju.

The report stated that Infosys' superior cost management ability would help it to manage stable margins in a high wage inflation scenario, while its competitors suffer with declining earning margins.

The investment research arm of Citigroup remains optimistic about Infosys in spite of the shares of the country's second largest IT services exporter trading at historic low valuations.

"The near-term outlook remains challenging but we continue to believe Infosys is best positioned to handle the crisis within its peer group," Citi analysts Surendra Goyal and Vishal Agarwal said in the report.

Infosys is scheduled to announce its third quarter results on January 13. Citigroup expects the company's revenue to drop four per cent sequentially which would include a marginal decline in volumes, stable pricing and a nearly four per cent impact on the cross currency.

Further, the company's volumes are expected to continue under pressure with clients cutting back on discretionary projects and the third quarter being also impacted due to "holiday project closures". "We expect pricing pressure to start being visible fourth quarter onwards for the industry," the report added.

However, the research firm believes that key downside risks for Infosys include significant appreciation of rupee against dollar, euro and pound, a prolonged slowdown in the US and pressure on billing rates.
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The funds raised through preferential allotment of shares will get pumped back into the company so I suggest the investors hold the stock
The stock has support at Rs 75
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Today's Analyst: Rajesh Jain
Query : Amrit Soni, a BPO executive from Chandigarh, asks if he can buy Infosys in the short term.