INFOSYS – THE SOUND OF THE WHISTLE GETS LOUDER

Infosys remains steadfast as the top loser on the bourses since the opening bell today morning, almost like a Fevicol ka jod.

A pedigree stock being hit with such allegations is shocking, especially because Infosys set the benchmark when it came to transparency and norm on corporate governance. A company like Infosys getting hit with ‘ethical’ allegations, made by a bunch of employees, which seems to be happening time and again, is simply a reflection of the times that we live in.

What is even more shocking is that all this has happened under the watch of the stalwart Nandan Nilekeni. After the exit of Vishal Sikka, Nilekeni was brought in to keep that watch but now, right under his nose, we have allegations of such major corporate governance issues.

This happened a month ago, when a group of employees from the finance had been fudging the company’s financials and inflating profits, margins and revenues in the recent quarters. There were also allegations that Parekh made racist and misogynistic comments against various members of the board.

The question being asked – is it is mere rumour mongering or there is truth in these allegations? Well, off late the markets have been inundated with cases of malicious rumour mongering – Yes Bank, Rcom, Indiabulls and many more. And because there have been instances in the past, given the mood of fear and uncertainty in the market, are some factions taking advantage of the psychosis?

In the case of Infosys, these whistleblowers say that they have audio evidences for certain allegations. In one of the allegations made in the letter, they write that in the current quarter, there is a pressure of not recognising $50 million of the costs incurred by the company – they claim to have the audio recordings of the same. So maybe this is not mere rumor mongering.

What raises more suspicion is that three days after Infosys announced its Q2 results, the IT major's executive vice-president and deputy CFO Jayesh Sanghrajka quit the company.

Currently there are too many question marks raised. Everything around Infosys looks murky. Time and again, these kind of issues coming up in  Infosys, in the long run will erode the reputation it enjoys even today. We say this because despite these worms creeping out of the Infosys rot, somewhere we all believe that Infosys will rise from this too; its too strong a company to allow this to bury it. Given its past trackrecord, we know that if all these allegations are indeed found to be true, it will be dealt with strongly. But the question nagging all – if this is true, who will lead Infosys now? We thought that the churn and turmoil in Infosys board has finally calmed down but looks like we are getting ready for some more once again.

As we said, Infosys is a pedigree stock and it tanking will affect the entire sector. But for TCS, this is an advantage and it could see more uptick if portfolios move from Infosys to TCS, which will be the obvious choice.

Many ask whether this is the right time to get into Infosys when it is beaten down but our advice is that they wait and see where this heads. If investigations reveal that the allegations are indeed true, there will be more fall.

The silver lining here, the only one – unlike majority of the companies, Infosys has a mechanism where the grievances can be aired, and there is set process to address it. But the clouds are getting darker as the sound of the whistle blowing is getting louder and louder; we as investors can only remain mute, at the most sell off or wait till this tides over.