Infosys shares plunged over 16 percent on Tuesday in the biggest intraday drop in six and a half years after whistleblower complaints accused CEO Salil Parekh and CFO Nilanjan Roy of unethical practices for many quarters. The complainants, a group of anonymous employees, also alleged that Parekh was bypassing reviews and approvals for large deals.
Infosys shares closed 16.21 percent lower at Rs 643.30 on BSE, wiping off over Rs 50,000 in its market capitalisation - its largest ever market cap erosion in a single day.
The stock price opened 10 percent lower at Rs 691 per share on the BSE. Intraday, Infosys shares fell as much as 16.9 percent to Rs 638 per share.
Most brokerages said the
whistleblowers' allegations could lead to a lot of potential uncertainty for the company and could put the stock under pressure for the near term.
Jefferies said, "The whistleblowers' letter alleges that many of the large deals have negligible margins. Every 100 bps lower margin impacts FY20/21 EPS estimates by 4.3 percent." The brokerage added that the issue could remain an overhang on the stock for a short term.
Credit Suisse said the nature of allegations is serious and, if proved, this could lead to termination of the top executives. Morgan Stanley said it could derate multiples until further clarifications emerge.
Here’s everything that we know about the Infosys whistleblower complaint and its potential impact
The complainants, who identified themselves as 'ethical employees', in a two-page letter informed Infosys' board of directors that unethical practices of Parekh and Roy were evident from their e-mails and voice recordings of their conversations, reported IANS.
When the board did not respond to their letter, an unnamed whistleblower on behalf of the employees wrote to the US-based office of the Whistleblower Protection Programme on October 3, alleging willful misstatement material accounting irregularities for the last two quarters (April-September), noted the report.
Infosys said both the complaints were placed before the audit committee on October 10 and before the non-executive members of the board on October 11.
"These complaints are being dealt with in an objective manner. The undated whistleblower complaint largely deals with allegations relating to the CEO’s international travel to the US and Mumbai," the company said.
Infosys America Depository Shares declined 12.11 percent to close at $9.29 per share on the New York Stock Exchange on Monday. Intraday, the Infosys ADR plunged as much as 15.5 percent to a low of $8.93 per share. Indian markets were closed on Monday due to state elections in Maharashtra.