Why Investing In Infosys Makes Sense Despite Executive Turnover

Infosys (INFY) , which was once a bellwether for Indian software stocks, has been hurt by stepped-up competition for large corporate clients as well as a turnover of senior management, which has slowed innovation.

Chief rival, Tata Consultancy Services (TCS) , has taken advantage of internal turmoil at Infosys, by signing up higher-value clients. As a result, Infosys shares have gained 4.5% this year trailing Tata's Indian-traded shares which have advanced 25% in 2014.

Profit margins at Infosys have also declined as Accenture (ACN)  as well as IBM (IBM)  have sought a larger slice of the business consultancy market making it more difficult to land the kind of big transformational deals that once propelled the Bangalore-based company into the ranks of emerging markets' favorite stocks.

But stepped-up competition has only been half of the problems at Infosys. Over the past two years, the company lost 12 top executives. That's a veritable brain drain, and operations suffered because of it.

Yet as Infosys enters a new period in its history, and the Indian stock market rebounds, investors are flocking back to once dependable emerging market growth stock. The Sensex 30, the Indian benchmark, has gained 20% this year compared to an 8% gain for the S&P 500 .

Part of the renewed interest in Infosys centers on its new CEO, Vishal Sikka. A former board member of SAP AG (SAP) , Sikka was partly responsible for developing HANA, SAP's flagship in-memory database offering now. At Infosys, he's expected to drive innovation by pushing the development of new products along with global services. Until now Infosys' product development has been weak.

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