Even as corporate governance issues comes to fore in India's second largest IT firm Infosys following whislte-blower complaints, the share price could take a 10-15% knock in the near-term, according to a report.
Even as corporate governance issues comes to fore in India’s second largest IT firm Infosys following whislte-blower complaints, the share price could take a 10-15% knock in the near-term, according to a report. Notably, a few anonymous employees of the IT giant have reportedly accused its CEO Salil Parekh and CFO Nilanjan Roy of unethical practices for many quarters. “This is 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. Stock will now languish 10-15% lower in the near term,” Harit Shah, Research Analyst, Reliance Securities said in a note.
Infosys finds itself in the midst of another episode of corporate governance-related issues, post Vishal Sikka’s exit in August-17. Reliance Securities noted that it is really disappointing that a company that has long been viewed as a “poster boy” of corporate governance in India has seemingly fallen to such levels. “It calls into severe question board-level processes at the IT major, which is even more disappointing given that when founder Nandan Nilekani was brought back on the board, his specific focus was to ensure high corporate governance standards post the Vishal Sikka fiasco,” said the report.
The anonymous employees have alleged that Infosys had hidden critical information is from the auditors and the board of directors, and in large contracts like Verizon, Intel and JVs (Joint Ventures) in Japan, ABN Amro acquisition, revenue recognition matters are forced which is not as per the accounting standards. Meanwhile, the matter is still under the review of Infosys’ board. 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, noted Reliance Securities. “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,” noted the report further.