A raw deal for Infy shareholders

The surprise resignation of Vishal Sikka on Friday and the consequent tanking of the Infosys stock on the bourses, saw investor wealth worth over ₹20,000 crore being wiped out in a day. The cause of the pain was not any immediate change in the business fundamentals of India’s second-largest IT services exporter, but the climax to the cold war between the current Infosys board and its founder promoter Narayana Murthy.

As Infosys shares crashed by over 12 per cent intraday, not only did the company fall out of the list of top 10 most-valued listed entities in India but also slipped below a few government-owned companies.

At the current price of ₹923.1, the market capitalisation of Infosys stands at over ₹2.12 lakh crore. If considered at the low ₹884.4 that the Infosys stock hit intraday on Friday, the market cap would stand at over ₹2.03 lakh crore versus ONGC’s over ₹2.06 lakh crore. ONGC stands at the 10th spot on the list mentioned above. Interestingly, the erosion in the share price of Infosys on Friday was more than the value of its share buyback, pegged at ₹16,000-17,000 crore. “It was a sad day for retail investors of a company like Infosys,” said Deven Choksey, founder promoter, KR Choksey Investment Managers. “Promoters in India will have to learn that businesses do not start and end with them. Value creation cannot always be done by following a method set by the founders of a company but new generation leaders will have their own working style.”

Last year, most investors in Tata Group companies received a similar same raw deal. Share prices of Tata group companies followed a pattern rather similar to Infosys when its group chairman Cyrus Mistry was sacked by former chief Ratan Tata.

Sikka’s resignation was the result of bad blood between him and Murthy, who is now being blamed by most in the stock market for creating a negative aura. Infosys is down 30 per cent since June 2016, when Murthy launched his tirade against Sikka’s pay hike. In April 2016, only 23 per cent of the promoters voted in favour of Sikka’s reappointment as Infosys CEO with 55 per cent pay hike. Then, Murthy also raised apprehensions regarding the board’s decision of a ₹17.38-crore severance package paid to Rajiv Bansal, the then CFO.

Murthy’s rant reached a crescendo earlier this year when he said that Sikka was at best a chief technology officer material and not CEO material. Opinion in the market about Sikka is in stark contrast to what Murthy thinks. A near 76 per cent rise in the share price of Infosys between May 2014 and June 2016 is the evidence of the trust that markets placed in Sikka, until Murthy started making comments against him.

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