Infosys Shares Extend Outperformance on Stellar Q2

Infosys was among the top Nifty gainers for a second straight session on Monday. The stock has now jumped over 9 per cent in just two sessions. Buying interest in Infosys has come back after India's second largest outsourcer reported better-than-expected earnings on Friday. Infosys shares traded at a new 52-week high today. (Track stock)

Here are the reasons for the gains in Infosys shares,

1) The founding team of Infosys retired from the company on October 10. According to CLSA, the promoters' stake will now be added to the free-float (the portion of shares that are not locked-in or held by promoters). This will result in higher weightage for Infosys in the MSCI index. Higher weightage will translate into higher fund flows. That's because passively managed index funds buy and hold stocks that form part of the index in the same proportion of the weightage of stocks that constitute the index. So, funds will flow into Infosys as its weight in the index goes up and will flow out of some other stock, whose weightage would be reduced to balance Infosys. CLSA expects overseas buying worth over $350 million to $375 million in Infosys shares because of index rebalancing.

2) A number of brokerages have upgraded their target of Infosys shares. Deutsche Bank's new target of Rs 4,400 is around 30 per cent more than its previous target. JP Morgan's has upgraded its target on Infosys to Rs 4,200 from Rs 3,900. CLSA's new target is Rs 4,700 from Rs 4,600, while Nomura's target on Infosys has moved up to Rs 4,300 from Rs 3,790.

3) Brokerages have upped their target on Infosys after a solid Q2. Infosys Q2 operating margins jumped to 26.1 per cent, beating analyst estimates. The company's top line was in line with estimates, but profits beat forecast. (Read the full story here)

4) Infosys' board on Friday approved a bonus issue of one equity share for every equity share held by investors. (Read the full story here)

5) The company also announced a dividend of Rs 30 per share. The high dividend has made the stock attractive, independent analyst Sanjeev Bhasin told NDTV, adding that Rs 4,000 could be a cap for the stock in the short term.