Infosys May Pick an Outsider as CEO After Srinivas' Exit: Analysts

The resignation of Infosys president and board member BG Srinivas has been described as a "major shock" and "big surprise" by analysts and has led to speculation that the IT major's next chief executive could be an outsider.

"It looks like the next CEO in all likelihood will be an external candidate," Nomura's Ashwin Mehta and Pinku Pappan said.

Infosys started looking for a new CEO in April after current chief executive SD Shibulal said he wanted to retire in January 2015 or before. Some analysts said Mr Srinivas might have quit because he may no longer be in the running for the CEO's job.

"The fact that he has left the company indicates he was no longer in the running for the top job," said Bhavin Shah, CEO of brokerage Equirus Capital told Reuters.

UB Pravin Rao, who was elevated as Infosys president along with Mr Srinivas, is now the senior most person in the race for the CEO post, analysts say.

Mr Srinivas is the 10th high-profile executive to quit Infosys since its co-founder NR Narayana Murthy took over as the executive chairman of the company in June 2013. The spate of exits have impacted employee morale, though analysts continue to be optimistic about the long-term prospects of Infosys.

On Thursday, Infosys shares fell as much as 8 per cent on news of Mr Srinivas' resignation. (Read the story here)

Here are five things to note about the latest development:

1) Impact on business: Mr Srinivas was a client-facing manager and was in charge of over 75 per cent of Infosys' revenue, including financial services, insurance (FSI), manufacturing (MFG), and engineering services, energy and communications (ECS) verticals. "He was a key person from a client interaction perspective, so it's a big loss for the company," Mr Shah of Equirus said.

2) More exits: Mr Srinivas' exit leads to the possibility of further resignations from Infosys, analysts say. Urmil Shah of Maybank said, "Srinivas' departure raises the chance the CEO vacancy will be filled by an external hire, increasing the likelihood of more senior management quitting." According to Barclays, the CEO selection process could lead to further churn within the company.

3) Big changes coming under new CEO? Barclays says the probability of an external candidate may indicate that the company's problems are more deep seated than earlier thought and that an external person is required to bring significant changes within the organization.

4) Slower recovery: Analysts fear that Infosys may take more time to return to industry-leading growth rate that initially thought. According to Maybank, the new CEO is unlikely to be appointed until the December quarter, so it may take more time to yield results as business restructuring is possibly delayed further.

5) Near-term headwind for stock may continue: Of all brokerages covering Infosys, 41 have a positive view on the stock, while 19 have a neutral view. Only five brokerages are negative on Infosys. However, the consensus bullish view on Infosys may change quickly if the company doesn't take a speedy decision for selecting the new CEO, analysts say.

Maybank downgraded Infosys to sell (target 2,773) on Thursday citing "earnings risks as more top management walks out". Nomura said the management exits at Infosys are negative. The brokerage prefers HCL Tech, Tech Mahindra and TCS to Infosys. (Track stock)

Barclays said the further churn within the company would likely weigh on the stock in the near term.