New Delhi: Shares of IT major Infosys nosedived by as much as 15% on the Bombay Stock Exchange on Tuesday morning, after a whistleblower complaint regarding alleged lapses in corporate governance were made public on Monday.
The stock recovered slightly after that and by 12:11 pm, it was trading at Rs 655.50, down 14% and over Rs 108 from its opening price.
The company is facing a new round of whistleblower complaints that allege a lack of corporate governance and the possibility of its financial accounts having been dressed up by CEO Salil Parekh.
In a statement issued on Monday, Infosys said that the complaints will be examined by the board’s audit committee as per established practice.
The 15% intra-day fall is the most in nearly six years – the last time the company’s shares fell more than this was on April 12, 2013.
In a statement issued on Tuesday morning, Infosys chairman Nandan Nilekani said the company’s audit committee will conduct an independent investigation into the accusations that Parekh and CFO Nilanjan Roy indulged in “unethical practices” to boost short-term revenue and profits.
The committee began consultation with independent internal auditors EY, and has retained law firm Shardul Amarchand Mangaldas & Co. to conduct an independent investigation, Nilekani noted in his statement to the stock exchanges.
Nilekani also said that one board member had received two anonymous complaints on September 30, 2019 – one dated September 20, 2019, titled ‘Disturbing unethical practices’ and an undated note with the title, ‘Whistleblower Complaint’.
He said both had been placed before the audit committee on October 10, 2019, and before the non-executive members of the board the following day.
“Post the board meeting of October 11, 2019, the audit committee began consultation with the independent internal auditors (Ernst & Young) on terms of reference for their prima facie investigation. The audit committee has now retained the law firm of Shardul Amarchand Mangaldas & Co. (October 21, 2019), to conduct an independent investigation,” Nilekani noted in his statement.
The board, in consultation with the audit committee, will take such steps as may be appropriate based on the outcome of the investigation, he added.
Downside to continue
Reacting to the development, Infosys’ ADRs (American depositories receipts), too, tumbled in the overnight trade on the New York Stock Exchange (NYSE). The domestic stock exchanges were closed on Monday, due to assembly elections in Maharashtra.
“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 per cent lower in the near term,” said Harit Shah, Research Analyst at 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, Shah added.
(With inputs from Business Standard).