Indian stock markets ended in the red for the second day in a row on Monday, mainly due to the ongoing turmoil at IT software services company Infosys triggered by the resignation of MD & CEO Vishal Sikka last Friday. The stock closed 5.37 percent lower at Rs 873 after having plunged 9.60 percent on Friday. The attractive share buyback at Rs 1,150 apiece announced on Saturday could not stem the free fall as many brokerages have downgraded the stock, factoring in tough times ahead.
The BSE Sensex closed 266 points lower at 31,258 while the NSE Nifty ended at 9,754, down 83 points. Top index losers other than Infosys included Adani Ports, Dr Reddy’s Labs, Sun Pharma and ONGC.
Foreign institutional investors (FIIs) continued with their selling spree, turning net sellers of Indian equities worth Rs 1,983 crore while DIIs ended up as net buyers to the tune of Rs 474 crore, according to provisional data released by the National Stock Exchange.
The ugly, public spat between Infosys co-founders led by NR Narayana Murthy and the company’s board over corporate governance issues that resulted in Vishal Sikka’s resignation raises doubts about the company’s performance, according to analysts. “We believe that Infosys’ 6.5-8.5% CC revenue growth guidance for FY18 (2-3.3% CQGR ask rate) is a tough ask now,” Apurva Prasad and Amit Chandra, analysts at HDFC Securities, said in a note on Monday morning.
“Downgrade to NEUTRAL with a TP of Rs 995, 14x FY19E EPS. Our multiple is reduced to
reflect the twin perils of internal corporate battles and a challenging business environment that the company will now have to navigate,” they added.
The ugly tussle between the board and its co-founders is here to stay for some time, impacting business prospects and performance for India’s second-largest IT software services exporter. “Friday’s dramatic events starting with the resignation of Vishal Sikka, followed by the unseemly public spat between the Infosys board and its founders pose collateral risks for the firm at just the wrong time. In our view it is the Board which is saddled with eroded credibility, as it has defended Sikka against founders’ allegations but has been unable to retain him. We think the founders are not done and expect an extended battle for credibility,” Apurva Prasad and Amit Chandra wrote in their note.
The co-founders/promoters hold about 13 percent stake in the company that announced a Rs 13,000-crore share buyback programme on Saturday.
“The buyback offer will comprise a purchase of up to 113,043,478 equity shares aggregating up to 4.92 percent of the paid-up equity share capital of the company at a price of Rs 1,150 per equity share,” Infosys said in a statement after the board meeting held on Saturday.
Two companies belonging to the Essar Group, Essar Shipping and Essar Securities, gained almost 13 percent and 20 percent, respectively, on the back of the $12.9 billion deal between Essar Oil and Russian oil firm Rosneft-led consortium.
Select stocks hit new 52-week highs
Despite the fall, a few stocks did manage to rally and hit new year highs on Monday. These included Tata Global, Tata Steel, PC Jeweller and VIP Industries.
