Mukul Agrawal Trims Stake in Smallcap AI Stock

The deluge of retail investors in Indian equities in recent years marks a major shift away from traditional investments such as gold, real estate, and bank deposits.

For perspective, the number of stock trading accounts zoomed from 41 million (m) in 2019 to 140 in 2023.

However, many of these investors are new to the market.

To actively keep track of the market, many of these investors closely track the investments of superstar investors in India like Mukul Agrawal, Ashish Kacholia, Sunil Singhania, and Vijay Kedia.

These investment gurus share valuable market insights from time to time in the market. Their buy-and-sell transactions could tell us where the market is headed or how the overall sector could perform.

In today's article, we'll focus on one such sell transaction from none other than Mukul Agrawal.

Who is Mukul Agrawal?

Mukul Agrawal is a prominent investor in India, who is known for his microcap stocks and smallcap stock picks.

His style of investment involves a mix of offence and defence.

He follows an offensive strategy most of the time after proper analysis. He also keeps two separate portfolios for investing and trading.

Which Stock Did Mukul Agrawal Sell and Why?

The stock in question is Infobeans Technology.

Infobeans is a software services company serving clients in various industries, including healthcare, finance, insurance, and e-commerce.

According to the latest exchange data, Mukul Agrawal recently sold 100,000 shares of Infobeans Technologies, reducing his stake by 0.4%.

He now holds a 4.6% stake, or 1.1 m shares, in the company, down from a 5% stake in the June 2024 quarter.

Agrawal originally acquired 1 m shares in March 2019.

Although his reasons for reducing his position in Infobeans Technologies are unclear, here are some potential factors that may have influenced his decision.

#1 Sectoral Pressure

One significant reason behind Mukul Agrawal's decision to trim his stake in Infobeans Technologies could be attributed to the prevailing sectoral pressure impacting the IT industry.

Over the past month, the BSE IT index has experienced underperformance, registering a decline of 1.3%. This downward trend is particularly concerning, as IT stocks recently faced their sharpest drop in over six weeks on 18 September 2024.

The investor's sentiment soured due to Accenture's announcement to defer staff promotions, which is indicative of a challenging consultancy environment.

This news caused Accenture's stock to plummet nearly 5% and consequently, triggered a broader sell-off in the IT sector.

As a result, the National Stock Exchange (NSE) Nifty IT Index experienced its largest single-day decline since early August, falling by 3.1% and closing at 42,089.

Further, the IT sector is grappling with multiple pressures, including an economic slowdown and widespread layoffs across major tech companies like Apple, Cisco, IBM, and Intel.

Such developments have fostered a pessimistic outlook, leading to profit booking among investors who are wary of potential earnings declines.

Moreover, the anticipated outcomes from the US Federal Reserve's monetary policy meeting, particularly discussions regarding interest rate adjustments, add an extra layer of uncertainty.

Further, any expected rate cuts could weaken the dollar, adversely impacting revenue growth for Indian IT players in the short term.

These multifaceted challenges facing the sector, can be one reason why the ace investor might have trimmed his stake.

#2 Promoter Stake Reduction

Another factor potentially influencing the stake reduction is the recent dip in promoter holdings. In the June 2024 quarter, promoters decreased their stake by 0.2%, reducing it from 74.18% to 73.98%.

Given that promoters are typically well-informed about the company's internal workings, even slight changes in their holdings can hint at underlying uncertainties or strategic shifts.

Such moves often signal larger shareholders to assess their own positions, as promoter activity may reflect insights into the company's future direction.

A Close Look at the Financials...

For the September 2024 quarter, revenue rose 8.1% to Rs 982.7 m from Rs 908.8 m a year back. It experienced 200.7% year-on-year (YoY) growth in net profit to Rs 1,126.6 m from Rs 42.1 m a year back.

In FY24, Infobeans Technologies recorded a 4.4% YoY decline in revenue, totalling Rs 3,685 m.

Infobeans Technologies' Financial Snapshot (FY20-24)

(Rs m, Consolidated)	FY20	FY21	FY22	FY23	FY24
Revenue	1,566.00	1,803.00	2,714.00	3,853.00	3,685.00
Revenue Growth (%)	35.5	15.2	50.5	42	(-4.4)
Net Profit	212	368	550	360	225
Net Profit Margin (%)	13.5	20.4	20.3	9.3	6.1
Return on Equity (%)	14.7	20.7	23.9	13.4	7.8
Return on Capital Employed (%)	19.2	21.5	28.4	20.3	12.7

Data Source: Equitymaster

Over the past five years, its revenue saw a compound annual growth rate (CAGR) growth of 26.1%, while net profit grew at 3.5%.

Infobeans Technologies' has maintained a strong return on equity (RoE) and return on capital employed (RoCE), averaging a healthy 16.1% and 20.4%, respectively.

What Next?

Infobeans is actively pursuing both organic and inorganic growth strategies to drive its long-term goals.

The company has a strong M&A pipeline, with a particular focus on acquiring one ServiceNow-focused and one Salesforce-focused asset.

These potential acquisitions align with Infobeans' strategy to expand its service offerings in high-demand areas, ensuring enhanced value and integration for sustainable growth.

Meanwhile, the growing demand for AI, cloud, and cybersecurity services presents additional avenues for expansion.

To support these growth areas, Infobeans is expanding into tier-2 cities, enabling talent acquisition and cost optimisation.

Furthermore, with increased spending by Global Capability Centers (GCCs) in India and a surge in digital transformation initiatives across various sectors, the company is well-positioned to leverage these trends.

Infobeans' agile structure also provides a strategic advantage, allowing it to adapt swiftly to evolving client needs, which could fuel higher growth compared to larger IT firms.

How Shares of Infobeans Technologies have Performed Recently

The share price of Infobeans Technologies has declined by 1% in the past one month.

Over the past one year, shares of the company have declined by 3%. In the past five years, shares have delivered multibagger returns of over 519%.

The company touched its 52-week high of Rs 511.6 on 14 June 2024 and its 52-week low of Rs 361.6 on 28 March 2024.

About the Company

Infobeans Technologies Ltd is engaged in business of software development services, specialising in business application development for web and mobile.

The revenue is derived from software development and related services.

The company geographically operates in United Arab Emirates, Germany, United States of America, India, and Rest of the world.

It derives maximum revenue from United States of America.

For more details, see the Infobeans Technology company fact sheet and quarterly results. Since small-cap stocks interest you, here's a proven approach on investing in small-cap stocks.

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