Didn’t understand much of last 2 posts… If there is 0 growth then also there will be future earnings right. Now present value will decrease but will be some value… How can it become zero 
I see many kirana shopkeepers running shop as usual even though monthly profit is hardly increasing. In job also if there is no salary increment doesnot mean we quit…
I think PE will be pegged to inflation or gdp growth or fd rates kind of… 8 % may be, that is 12 PE…
The market itself has the answer.
If growth of missing then it comes down to the company’s earning power, which is EPS/price
Ongc is earning RS.20 per share costing rs.150
That is a PE of 7.5
For Infy, a PE of 10 because it’s a private Enterprise.
Yes. You are correct about PE of 12. PE equal to EPS growth is a big myth. Infy is already trading close to a zero growth forward PE adjusted for cash holdings.
Disc: holding and adding at these levels.
But you don’t trust market valuation of other stocks as you find nifty PE very high. right?
The IT industry is obviously facing disruption from automation, and it’s not quite clear how Infosys is adapting itself. What I fear, is that old ways of organising workforce needs to be changed, and that indian IT companies may not be able to take steps, create new units, at the cost of cannibalising the business of their existing units. If they are not able to adapt, then the expected 10% growth over 10 years may not come, infact it may degrow.
Secondly, inorganic growth may not be sustainable. As a tech company, it needs to develop a culture of creating software products, as opposed to acquiring and servicing like it is presently doing. TCS, with its focus on organic growth, fares better
Lastly, low promoter shareholding risks management focus on optimising short term share price movement, as opposed to taking decisions from long term strategy perspective.
Yes. Nifty is soaring high.
When it’s not, whenever that may happen, even decently growing stocks with near term visibility in earning growth, will sell below PEG 1.25
They always do, but at that time there won’t be as many new portfolio threads on VP as they are now.
Very timely article on infosys reskilling employees. I don’t know why I feel Mr. Parekh is very humble and genuine unlike previous Chief… flamboyant Mr. Sikka.
He is. I worked for this company 20 years back. Those days also people were sceptical about disruption from web technologies and so on. Every one wanted to give gyan to Mr Murthy how to run the company. As someone said, people will buy Vakarangee for cooked growth but will not buy a company with moderate growth, 3 decades of track record and very eminent management.
Vakarangee is a bad investment, but that doesn’t make Infosys a good one. Rather than looking for reasons to buy, good investors focus on reasons they may have to sell the shares.
Disclosure: invested in TCS, never considered investing in vakarangee.
I think we need to discuss cannibalisation process more …
As business head I have seen cannibalisation is more stronger in products across industries as compared to services esp in B2B …
Corporates hate to give up on services / human touch --> whether it is as rudimentary as housekeeping, security to more complex IT product customisation …
Every decade brings in new IT products and technologies and most senior management staff just don’t understand how this technology can be leveraged ( In 1980s it was computers , In 1990s it was internet , 2000s : Social Media , Now in 2010s : Blockchain , AI etc … )
These management and their staff need to handholded and that means IT services will be there so long technology throws in new products and technologies
Now the point comes will Indian IT services have competitive advantage …
I think India has large first mover advantage and scale … plus Indian IT services have proven to be Anti fragile as compared for most industries … Inspite of that Indian IT can fail and that is where MOS is critical … Low PE gives that comfort …
Now look at PE many of industries which these IT services can disrupt - Retail, Automobile, Telecom FMCG, Utilities, Pharma etc …
Now that is choice we have as investors - We need to pick what will give us best risk adjusted returns
The reason why I don’t fancy investing in Infosys is that I think the company is past its prime and growth will taper off going forward. Some tailwinds like rupee depreciation may help it occasionally but unlike the high PE FMCG firms, the future growth is not visible to an average investor like me. With most of the business coming from the US, even degrowth is feared. These are just my perception without any deep study. Moderators may delete if inappropriate.
Every decade or so, infosys and companies alike comes with long term strategy… For survival, growth and relevance. Right now it’s infosys 3.0…as per hearsay.
Infosy is mid cap IT by global standards with just $10 billion annual revenues . It has negligible market share across the segments it operates . The problem is Indian IT management never focussed on growth ( which they seems to be doing now )
To give context just a small segment like IOT market size is $ 200 billion ++
Now can Infosys or any Indian IT services company can take slice of multiple opportunities coming in their way in 2020s and beyond is big question … The opportunities are …
Which Indian organization, do you think, is best equipped to adapt to the changing scenario in IT?
TCS, I think.
Not sure … All are trying their best for same pie … currently Accenture seems to be leading the battle …
Technology services in not winners take it all market. Customers split work among few vendors to derisk. So all players with good management and HR practices will do well. Infosys/TCS/Accenture/Cognizant all are at top of this game.
To highlight the point how difficult it is for Management to select and customise right software products for their business …
The following is Retail Tech products … Imagine you are head of Retail business and you need to decide where you will get highest ROI and which company you need to partner with … That is nightmare
Good perspective. That explains the fact smaller players don’t stand much chance. If you see 100s of these companies started in early 1990s. Only 4 really took off and scaled in meaningful way - TCS, Infy, Wipro, HCL + Accenture and Cognizant. Larger ones kept growing faster than small companies.
That is why Mid cap IT are increasingly focusing on niches where they can compete better than large players …
Another model that is working is like the way financial advisors do – sell advice and sell products also .
Most of IT services are resellers of product companies … They get consultancy fees , distributor margin and installation/ customisation fees …
They are not resellers of products except for small companies. They build custom software.
