Infosys institutional investors cautious, await investigation report

The hammering of the Infosys stock following whistleblower complaints against its two top executives is a worry for institutional investors such as Life Insurance Corporation of India, which has close to 6 percent shareholding in the company.

Infosys closed at Rs 643.30, down 16 percent on BSE, on October 22 after the Bengaluru headquartered company said it was investigating complaints that Chief Executive Officer Salil Parekh and Chief Financial Officer Nilanjan Roy engaged in irregular accounting practices.

According to reports, the company lost market capitalization of close to Rs 50,000 crore.

This will impact institutional investors who had 56.3 percent of the total shareholding at the end of September. Promoter groups share was around 3.15 percent and Foreign Portfolio Investors about 33.51 percent. Mutual funds such as HDFC, SBI and ICICI accounted for about 12.92 percent of the shareholding.

The stock took a beating after media reports said a group of anonymous staffers, who call themselves “ethical employees” wrote a letter, dated September 20, to the Infosys Board and to the US Securities and Exchanges Commission on October 3.

The letters alleged that Parekh and Roy followed unethical practices to boost short-term revenue and profits, media reports said. Infosys’ audit committee was looking into the complaints and Parekh and Roy had recused from the matter, company chairman Nandan Nilekani said in a statement.

Some analysts have recommended that investors stay away from the stock, for now.

Ashish Nanda, EVP & Business Head-PCG, Commodities and Currency Business, Kotak Securities, said in a note that investors and traders should “stay away from catching a falling knife” till there was clarity from the company on corporate governance issues.

For investors, it is indeed a worrying development just when they were reposing faith in the company. “More than the loss of value, investors will be awaiting the results of investigations,” Shriram Subramanian, founder, Ingovern Research Advisory.