Financial Daily from THE HINDU group of publications
Sunday, Aug 03, 2003
Financial Daily from THE HINDU group of publications Sunday, Aug 03, 2003 |
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Investment World
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Stocks Markets - Recommendation Info-Tech - Stocks Infosys: Take advantage of the uptrend Suresh Krishnamurthy
THE Infosys stock has run up on the back of the offer of sponsored American Depository Shares (ADS) placed at a premium of 26 per cent to the domestic market price. Conversion of a part of domestically held share capital into ADSs has delivered sizeable returns to the shareholders. However, with the ADS issue now completed, the stock's valuation appears stretched based on fundamentals. The stock trades at a price to earnings multiple of nearly 22 times its expected earnings per share for the FY 2004. This valuation level requires growth rates of 20 per cent or higher for at least a couple of years. This may be achievable only if the IT industry environment shows a sharp resurgence. The uncertainty regarding large revenue growth is now much less than before. But the possibility of a steady decline in margins beyond March 2004 is a threat. This could stifle earnings growth over the next few years. Investors, therefore, can consider paring exposures to the stock.
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