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After CEO’s resignation: Infosys stock plunges 9.6%, investors lose over Rs 22,500 cr

YB WEB DESK. Dated: 8/19/2017 11:06:43 AM

Infosys shares on Friday crashed by 9.6 per cent after the tech firm’s chief executive Vishal Sikka quit following a welter of charges and denials between him and the company’s founders led by former chairman N R Narayana Murthy.
Sikka’s exit led to a sharp fall of Rs 22,500 crore in investors wealth in Infosys as the company’s market capitalisation — market value of its listed shares — tanked to around Rs 2,12,033 crore during the day.
After the day-long battering, Infosys shares closed at Rs 923.15, down 9.6 per cent, on the BSE. The Sensex also fell 271 points to 31,524.68. Sikka’s exit has come a day after an email of Murthy to some of his advisers that, he had been told by at least three independent directors of the company that Sikka was more chief technology officer (CTO) material than chief executive officer (CEO) material, was published by the newspaper Mint.
V K Sharma, Head-PCG, HDFC securities, said, “Sikka’s exit draws a long-drawn board-room battle to a close. While the company did better than the industry during Sikka’s tenure, it was nowhere near achieving Sikka’s own $20 billion target by 2020. The forthcoming buyback may belay the stock from falling more. Sikka’s allegation that he was continuously being distracted does not wash as he had long enough a honeymoon period to make his mark.”
Kaustubh Belapurkar, Director, Fund Research, Morningstar, said, “domestic fund managers have been pruning exposure to the technology sector over the last year, due to tepid growth seen in the industry due to global headwinds as well as the rupee strength. Technology sector allocation across all funds on an aggregate basis has come down dramatically to 8 per cent from 9.75 per cent over the last one year. Infosys has been the favoured stock from the tech space, with 40 per cent of the MF industry’s overall technology sector allocations being made in Infosys.”
“While in near term it’s a setback for the company, given the strength of the board of the company, we believe that the company will be overcome the setback,” said Sarabjit Kour Nangra, Vice President, Angel Broking.
Infosys said there was no change in the share buyback plan. The company had in April announced that it will pay up to Rs 13,000 crore to shareholders during the current financial year through dividend and/or share buyback. “There is no change in buyback plans. We have made a commitment on how much and when to return cash to shareholders,” Infosys board Chairman R Seshasayee said at a conference.
This is the second high profile exit of an high profile CEO of a top business group in the last 12 months. The sacking of Cyrus Mistry as Tata Sons Chairman last had also raised corporate issues with Rata Tata questioning many of the decisions of Mistry. Sikka’s resignation happened even before the dust settled on Mistry’s sacking.
The Infosys saga started in February 2017 when Murthy and former Infosys directors TV Mohandas Pai and V Balakrishnan demanded that the Chairman R Seshasayee step down over alleged governance and disclosure issues. The founders of Infosys who hold over 12.75 per cent stake in the company had then sent a letter to the board raising several concerns. Later both Sikka and Seshasayee clarified their position. However, Murthy was yet to withdraw his February statement on concerns over governance and disclosure issues.
Infosys then conducted an investigation with the help of external agencies which included Gibson Dunn & Crutcher, Control Risks and Khaitan & Company. As disclosed in June 2017, the summary of the report had said, “We found no evidence whatsoever to support any of the new allegations in the complaints regarding wrongdoing by the company or its directors and employees, and those allegations were rebutted by substantial and credible evidence.”