Promoters wanting to participate in Infosys buyback sends the wrong signal

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26 Aug, 2025 12:21

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Madhuchanda DeyMoneycontrol Research

The attractive price of the Infosys buyback at Rs 1,150 was a thin silver lining to the dark cloud that had enveloped the former IT industry bellwether. But now there’s the possibility of more rain: Should investors worry about the company’s prospects if the promoters are enthused enough to tender their shares?

With Sebi reserving 15 percent for the small shareholders (value of holding upto Rs 2 lakhs), it translates into a decent payback, especially since the valuation provides downside support to the stock.

While we do not deny that valuation comfort, we also feel that near-term upside may be also capped going by the recent sound bites from the company.

Promoters of Infosys now driving the business

Promoters hold close to 12.7 percent in Infosys. For a while, some of the promoters had expressed concerns about the falling corporate governance standards in the company and were unhappy with the state of affairs under the professional manager and the Board. As a pure shareholder, they wanted the Board to return some of the cash. But a lot has changed in the past one week.

The criticism degenerated into a nasty spat and the rest is history. The exit of Vishal Sikka and the old Board has now decisively shifted power to the promoters/founders under the able leadership of Nandan Nilekani.

Nilekani has charted out his priorities:

• Identify a new CEO. Infosys has kicked this off with the appointment of Egon Zehnder (executive search firm) and Kiran Muzumdar Shaw as Chairman of the Nominations committee.

• Create a truly independent, strong and well-balanced board.

• Review technology strategy and effectiveness of initiatives undertaken over the past three years and redefine strategic direction.

• Review findings of investigations pertaining to whistle-blower allegations and take appropriate action.

• Establish a structure to take inputs from all shareholders (including founders) and ensure harmonious alignment of all stakeholders.

The directional shift is evident. Going forward, the power centre is going to be based out of Bengaluru and the founders are going to be an integral part of major decision-making at Infosys.

Promoters want to participate in the buyback

While all this is truly reassuring for minority shareholders of the company, what is a bit perplexing is the company’s notification to the stock exchanges yesterday stating that some of the members of the promoter and promoter group of the company have communicated their intention to participate in the proposed buyback.

Infosys is in the safe hands of the promoters; the company has built a solid franchisee and amid the recent doldrums there is no change in the strategic direction. While the buyback structure is attractive for small shareholders, it is not so for others. If every other shareholder tenders, the acceptance ratio is a minuscule 4.2 percent.

While we still do not know who all intends to tender in the buyback and in what quantity, of the five families, Murthy’s family has the largest stake followed by Gopalakrishnan.

How should investors read into this?

We had highlighted in our earlier note that while the long-term outlook of Infosys is contingent on the strategic direction that the company adopts under the new leadership, the short-term outlook might be more challenging.

(http://www.moneycontrol.com/news/business/moneycontrol-research/how-should-investors-play-the-return-of-nilekani-at-infosys-2369955.html)

Just when markets were believing that all is well at Infosys, the intention of the promoters to participate in the buyback might lead investors to re-think if the short-term headwinds are worth taking note of. If the savvy promoters of Infosys perceives Rs 1150 to be a great price when a minuscule proportion of their shareholding will get accepted, shouldn’t investors read this with caution, at least in the short-term?