Infosys saga: What markets want to hear in NRN Murthy's investor call

Even after the Sikka's resignation, charges and counter-charges have continued to flow

The public spat between the Board and Narayana Murthy, one of the co-founders of Infosys, has taken a heavy toll on not only the stock, but its public image as well. In a latest, Infosys co-founder N R Narayana Murthy planned to to reach out to investors on Wednesday evening to explain his stand on the developments. However, the call has now been rescheduled to August 29.

Between August 18 when Vishal Sikka, its managing director (MD) and chief executive (CEO) tendered his resignation, Infosys has slipped over 14% to 877 levels Rs till close of trade on Tuesday and eroded nearly Rs 33,000 crore in investor wealth as measured by market capitalisation (market-cap), ACE Equity data show.

Analysts say investors have been already incrementally negative on Infosys given the dispute between promoters and the board, and Vishal Sikka's sudden exit last week has further fueled their concerns.

“We consider this event would be further taken negatively. We believe other than an imminent buyback there might not be any major triggers to look forward to over the next two quarters. We expect a de-rating of the stock, and downgrade to ‘reduce’ with the target price cut to Rs 875 from Rs 1000,” point out Ashwin Mehta and Rishit Parikh of Nomura in a report.

So what do investors and markets want to hear from Mr Murthy? Can the call inflict more damage to the already wounded company?

Some experts do think so. At a broader level, however, they feel the call is primarily to address investor concerns and Narayana Murthy’s stand that has seen a massive erosion of shareholder wealth over the past few trading sessions.

“I think the main motive is to address investor’s concerns given the developments. Infosys stock has lost heavily since the past few sessions and there are people who have held on to the counter over the past couple of decades. That said, any negative development or scathing remarks by Narayana Murthy can inflict further damage to the stock price and Infosys’ image going ahead,” says G Chokkalingam, founder and managing director of Equinomics Research & Advisory.

Even after the CEO resignation, charges and counter-charges have continued to flow between Narayana Murthy and the board of Infosys. Domestic Institutional Investors (DIIs) have reportedly written to Infosys seeking the return of co-founder Nandan Nilekani on the company’s board. CLICK HERE FOR THE STORY

While Murthy is harping on what he sees as the low corporate governance standards followed by the board, Vishal Sikka has alleged the constant drumbeat of the same issues over and over again that forced him to resign.

That apart, three US law firms, Bronstein, Gewirtz & Grossman, Pomerantz Law Firm, and Rosen Law Firm, have initiated investigations into Infosys amid concerns over whether the company’s directors have been engaged in securities fraud or other unlawful business practices, reports suggest.

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“The developments have already been a double whammy for the stock. Murthy cannot talk regarding Nandan Nilekani’s rumoured candidature as he is not on the Board right now. I think he will clear some air as to why he went ahead and did what he did. In my view, Narayana Murthy didn’t do anything wrong. Unless we have strong whistle-blowers, these things do not get sorted out. Murthy has just rung the alarm bell and there is nothing wrong in it,” says K Subramanyam, co-head for equity advisory at Altamount Capital.

Going ahead, Infosys will need to create mechanisms to shield management from external noise as has been the case here, analysts say. 

“Interim challenges will also involve business continuity especially with large clients and preventing attrition in senior management and sales. In the backdrop of industry changes and slowing growth across the sector, the time taken for resolution of these, especially the new CEO appointment, will be key,” feels Vaibhav Dhasmana, an equity analyst at Jefferies India in a note.