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Infosys to fund start-ups

Jan 4, 2000

Infosys Technologies has decided to fund start-ups if it finds them to good idea or an interesting proposition. A world leader in providing IT consulting and software services to Fortune 1000 companies, Infosys offers software services such as application development, re-engineering, software maintenance, Internet consulting and package implementation.

The idea is not only to support the start-ups of past employees of Infosys but also those of the industry. This will help the company in three ways. First, it could increase Infosys’ awareness about a particular technology; second it could enable the company to continue having a stake in high potential talent which it other wise could have lost; third it will give the company access to areas and technologies, which as a company, it may now not be able to pursue.

The main reason for the move however seems to be that it will allow Infosys to put to good use its huge cash surplus which it had in the aftermath of the ADR issue. The company has been looking out for acquisitions but it hasn’t been successful so far. The company has clearly stated that if in any start–up if it picks a stake beyond 20% it would like to consolidate the venture in its balance sheet.

Market View:
Despite the stock trading at a historical peak, given the potential from acquisitions, overseas development, e-commerce thrust, the upside remains. Perhaps the only grey area could be a de-rating of the sector as a whole, which doesn't seem likely at the moment. Further with the scrip having an 17% weightage in the sensex, it will be very difficult for any fund manager to ignore the stock. It is for these reasons that the analysts continue to recommend the stock.

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