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Infosys shares plunge to a 10-month low as whistleblowers target CEO

Our Bureau Chennai | Updated on October 28, 2019 Published on October 22, 2019

The allegations have been placed before Audit Committee, says its Chairman Nandan Nilekani

Shares of Infosys maintained its weakness throughout the day on Tuesday on whistleblower complaints against the company. The stock closed at Rs 650, a significant fall of 16.65 per cent, on the National Stock Exchange, with over 9.01 crore shares changed hands.

According to NSE deliverable position, about 66 per cent shares traded today is up for delivery, meaning investors still willing to buy the stock. Generally, the counter is one of high delivery tradeable quantities in the region of about 60 per cent, and that continues today too.

Ethical Employees, a whistleblower group, has allegedly complained to the US Securities and Exchange Commission and the Infosys Board that CEO Salil Parekh was indulging in "unethical practices” to boost short-term revenues and profits.

Infosys, in a statement, said: “The whistleblower complaint has been placed before the Audit Committee as per the Company’s practice and will be dealt with in accordance with the Company’s whistleblowers policy.”

Read also: Whistleblower’s charges: testing time ahead for Infosys

According to global firm Macquarie, Investors should watch critically for the outcome of the investigations. Any significant change in sales strategy or top management could increase uncertainty around growth, it said and added that "We are not changing our estimates pending further update on the matter,".

For Morgan Stanley, the development is a setback for the company and it could de-rate Infosys's multiples 'until clarity emerges'.

 

Equirus Capital does not see any impact on near-term financials. "We believe the whistleblower has mixed accounting norms with business decisions. Large deal wins could be margin dilutive in the initial phase or might require an upfront investment from vendors. In our view, this may be considered as customer acquisition cost".

Move towards TCS?

According to domestic broking firm Emkay Global, this will push investors towards TCS from Infosys. "While we are not in a position to ascertain the truth of the allegations (note that Infosys has referred this matter to the Audit Committee which is investigating), the newsflow around this may dominate investor attention in the near term and could continue to support the shift toward TCS (especially after September'19 quarter results) despite Infosys' results being a tad better than TCS vs. Street expectations".

Read more: Infosys net profit down 1.8 per cent to Rs 4,037 crore

Will the Infosys stock rise like last time?

Investors are now expecting the stock to bounce back as it did in 2017, when Vishal Sikka was forced to quit the company as CEO and Managing Director. Sikka, the first non-founder MD & CEO of the Bengaluru-based software major, had resigned after a three-year stint at the helm of the company. He had quit enterprise software firm SAP to take up his role at Infosys.

Podcast | Infosys whistleblower: What next for Salil Parekh?

Sikka resigned from Infosys on August 18, 2017, a Friday, in the wake of a number of contentious issues, including the company’s acquisition of Israeli firm Panaya. On August 22, the Infosys stock plunged to a low of ₹430. But since then, the stock has recovered sharply to touch a high of almost ₹850.

If one takes into account the 1:1 bonus the company rewarded its shareholders with in 2018, the stock value has almost quadrupled.

Published on October 22, 2019
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