Infosys erodes over $6 billion in market cap on whistleblower complaint2 min read . Updated: 22 Oct 2019, 10:30 AM IST
- The stock slumped 16%, marking its biggest single-day fall since 12 April, 2013
- It touched a low of ₹645 — a level last seen on 26 December, 2018
Mumbai: Infosys Ltd on Tuesday saw its market capitalistion erode by over $6 billion or ₹43,925 crore after a whistleblower complaint accused the company’s chief executive officer and chief financial officer of unethical accounting practices.
The stock slumped 16%, marking its biggest single-day fall since 12 April, 2013, and touched a low of ₹645 — a level last seen on 26 December, 2018.
The complaint, dated 20 September, follows more such complaints that led to the exit of previous CEO Vishal Sikka.
"Indian companies enjoy a lower rating on valuations due to mis-governance and Infosys will be also see itself in the list following the development. Auditors in India have recently been under lens for not being true and fair and such developments will on top rated company have an overall impact across the spectrum", analyst said on a condition of anonymity.
An anonymous letter sent to the company’s board and the US Securities and Exchange Commission has alleged suppression of information related to visa costs. All this, to show higher profits and keep Infosys’s stock price buoyant. The letter also contends employees were pressed not to record reversals of contractual payments to the company worth $50 million.
"Very serious news indeed. This equates to a corporate governance issue. Deputy CFO has also quit. This in itself is an indirect admission that something is rotten", said Harit Shah, research analyst at Reliance Securities. Shah expects stock to now fall 10-15% in the near term and has a ‘hold’ rating on the stock.
"While we await developments on the board investigation, given that it is so widely held, it is very likely that some investors will vote with their feet and sell at least some of their holdings. The market is very unforgiving of companies that have corporate governance issues and while it would not be fair to directly jump to conclusions, this issue appears quite ugly at least on the surface", Shah added.
In a clarification to exchanges on Tuesday, chairman Nandan Nilekani said the company has placed both the complaints before an audit committee and before the non-executive members of the board. CEO Salil Parekh and CFO Nilanjan Roy have been recused from the matter.
"The Audit Committee has now retained the law firm of Shardul Amarchand Mangaldas & Co. (October 21, 2019), to conduct an independent investigation. The Board, in consultation with the Audit Committee, will take such steps as may be appropriate based on the outcome of the investigation," Nilekani said.
"Because the investigation is ongoing, there will be no further comment so that investigation may be conducted in a thorough and objective manner. At the appropriate time we will provide a summary of the investigations results. The Board is committed to uphold highest standard of corporate governance and protect the interests of all stakeholders," Nilekani added.