Infosys Shock Spurs 9,400% Gain in Near-Worthless Options

Infosys Shock Spurs 9,400% Gain in Near-Worthless Options

To get a sense how surprised investors are by the departure of Infosys (INFO) Ltd. co-president B.G. Srinivas, take a look at the options market.

Yesterday’s most-widely held put options on Infosys, those that expire today and become profitable if shares fall below 3,100 rupees, surged 17-fold at the 3:30 p.m. close in Mumbai. Bearish contracts with a strike of 3,000, which tumbled 88 percent yesterday to just 0.8 rupee, rallied as much as 9,400 percent in Mumbai. The stock sank 6.5 percent to 2,924.5 rupees.

While swings in options prices often increase as they near expiry, the size of today’s moves suggests investors were blindsided by the departure of Srinivas, who oversaw units at the software-services provider catering to insurance, manufacturing and financial-services companies. The exit is a “major shock” as Srinivas was a potential candidate for chief executive officer, wrote Maybank Kim Eng analyst Urmil Shah.

“We are surprised,” Hugh Young, a Singapore-based managing director at Aberdeen Asset Management Plc, which oversees about $541 billion, said in an interview on Bloomberg TV India. The “leadership issue for us is the most important one, who the front bench of leadership will be, and we are not totally clear on that. That needs to stabilize.”

Srinivas is at least the 10th senior executive to leave the Bengaluru-based company since founder N.R. Narayana Murthy returned as chairman in June. Chief Financial Officer V. Balakrishnan, who presided over a fourfold increase in net income over his six-year tenure, left in December, and Americas head Ashok Vemuri left in August to become CEO of rival Igate Corp. Infosys is searching for a new CEO to replace retiring co-founder S.D. Shibulal.

Sales Outlook

Infosys forecast April 15 that full-year sales will climb 7 percent to 9 percent in U.S. dollar terms, versus the 6 percent to 8.3 percent average of six analyst estimates compiled by Bloomberg. It posted a 25 percent jump in fourth-quarter profit.

The shares tumbled to the lowest level since July 29, the worst performance on the benchmark S&P BSE Sensex index and the second-biggest losers in the MSCI Emerging Markets Index.

“Infosys shares could sustain at current levels,” B. Gopkumar, executive vice president at Kotak Securities Ltd. in Mumbai, said by phone.“Yesterday’s exit will not materially change the company’s earnings.”

The 3,000 puts were the eighth most-active contract on Infosys. Calls with a strike of 3,000, which tumbled 99.96 percent today, had the highest volume, data compiled by Bloomberg show. Puts give the right to sell a security, while calls convey the right to buy.

“I’d have loved to have gone home yesterday buying Infosys puts,” Manoj Vayalar, an assistant vice president at Religare Securities Ltd., said in a phone interview. “All options sellers have been caught on the wrong foot today.”

To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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