Infosys: Sold

I finally mad emy decision and sold my shares of Infosys yesterday morning, just in time to see the sock go up $3.50 the rest of the day, Doh!

I still think it was a fine time to sell, at the current price the company has to grow sales at more than 30% annually for the next five years. That is 30% growth in competition with all of the other Indian IT firms plus US firms like Accenture and IBM who have both created huge divisions in India, Accenture now employs more than 10,000 in India alone. That is 30% growth when a lot of US companies are having second thoughts about outsourcing based on their initial experiences. Could Infosys grow at more than 30% annually for the next five years, sure, do I want to count on it, no.

The other factor that made me decide to sell is the fact that Infosys will be offering $1 billion in new ADS this week. The US shares trade at about a 40% premium to the same shares in India. While a small premium is expected, 40%? It is a move that will probably turn out well for Infosys, the company is buying local shares, converting to ADS and reselling them at a higher profit. So all of a sudden Infosys has a market arbitrage division, okay. I tend to think the US shares are a little pricey, and it would make sense to me if the gap between the US and Indian shares narrowed. Will it happen? I don't know, but I do know that the idea makes me nervous and that I don't want to be part of it right now.

Could Infosys announce great results this quarter and make me look like a fool? Sure, in fact there is a good chance of that, but I still don't think the economics of their business justifies the current price, so I am off to something I think is a better investment right now, but if Infosys disappoints this quarter and the stock tumbles like it did last quarter, I could be interested in this one again.

Timothy Burger