Yesterday, when the Sensex was down 455 points, Infosys an index stock was up 3.32% while TCS and HCL Technologies were flat. On Saturday, Infosys announced that NR Narayana Murthy would come back as the executive chairman. A case of insider trading? We will never know because Infosys is a holy cow and there will be no probe
On Saturday, Infosys has announced that its main founder NR Narayana Murthy who was on a retirement, will be returning to the company as executive chairman of the board and as an additional director for five years beginning from 1 June 2013. It also said that Rohan, his son, will be joining the $7 billion company as his father’s executive assistant. This is strange because Mr Murthy is widely seen as a professional manager, who once headed a corporate governance committee of Securities and Exchange Board of India (SEBI). In addition, Rohan was never known to be interested in running Infosys.
More intriguingly, while the press statement by Infosys was released on Saturday, yesterday the BSE Sensex tanked 455 points, or 2.25%, but Infosys, a Sensex stock, actually rose by as much as 3.32% during the day.
As a matter of perspective, this was the highest percentage decline in the Sensex in 14 months and the highest rise for Infosys in one and half months, both happening on the same day! Did all software stocks rise yesterday? No. Tata Consultancy Services (TCS) and HCL Technologies were flat. Worse, ever since Infosys crashed by as much as 20% on 12th April, after declaring poor results and muted guidance, there has not been single positive factor that could drive the shares up. The stock has been moving sideways in a narrow band. There was absolutely no reason for the stock to rise yesterday. No material information was released to the public.
Clearly, someone knew that Narayana Murthy is coming back and that many investors will see this as a positive development. There is a prima facie suspicion of insider trading.
Two block trades did take place on the National Stock Exchange (NSE), according to web portal moneycontrol.com. One block deal took place on NSE at 15:28 hours, or two minutes before market closing. Another block deal took place at 15:18 hours, or 12 minutes before market closing. The value of these deals were Rs5.77 crore and Rs6.25 crore, respectively.
While taking over an executive chairman, Narayana Murthy said, “This calling was sudden, unexpected, and most unusual. But, then, Infosys is my middle child. Therefore, I have put aside my plans-in-progress and accepted this responsibility. I am grateful to Mr KV Kamath—the chairman, the board, and every Infoscion for giving me this opportunity. I intend to do my best to add value to the Company in this challenging situation.”
Amazingly, just last month, he had denied the possibility of returning to Infosys. When the Mint newspaper had asked him about it, Mr Murthy said, “I think as I said, sitting where I am, looking at the data, I don’t see that happening. I think it’s all speculation.”
According to the press release, Mr Murthy will be earning a token salary of Re1 only.
Infosys said, “In order to function more effectively Mr Murthy intends to create the chairman’s office to assist him during his tenure and has requested the board to permit him to put together a team for this function. The team will include his son, Dr Rohan Murthy, as Mr Murthy’s executive assistant.”
After the company’s March quarter results, Nomura Research had said that in the light of a lower-than expected fourth quarter performance by Infosys, it expects consensus earnings, multiple downgrades, and management’s outlook of pricing and margin pressure in the near term.
Infosys reported net profit of Rs2,394 crore for fourth quarter of FY2012-13, registering a marginal 3.4% year-on-year (y-o-y) growth and 1.1% sequentially, as per Indian accounting standard. Its consolidated revenues for the quarter under review, however, rose 18% y-o-y to Rs10,454 crore and flat (0.3%) sequentially.
Infosys’ management indicated to Nomura that there were delays in deal ramp-ups and deal closures in 4Q. While 4Q volume growth at 1.8% q-o-q was better than 3Q (1.5% q-o-q), pricing decline of 0.7% q-o-q and cross currency impact of 0.4% q-q impacted revenue growth.
On pricing, the management had stated, “There is pricing pressure in the non-discretionary portfolio (63% of revenue) and management expects this to get worse in the near term.”
According to Nomura, Infosys’ management expected the environment to be challenging and was finding it difficult to predict margins in the short-term as there are unknowns like pricing, cost of hiring onsite given likelihood of visa shortage and investments required to be made to push growth.
Coming back to the appointment of Narayana Murthy, veteran banker KV Kamath would step down from his position as chairman of Infosys and take up the role of lead independent director. In the statement, Mr Kamath said, “The board has taken this step keeping in mind the challenges that the technology industry and the company faces and in the interest of all stakeholders, particularly shareholders large and small, who have asked for strengthening of the executive leadership during this challenging time. Murthy’s entrepreneurial and leadership record and the long experience he has had as a technology pioneer makes him eminently qualified to lead the company and provide strategic direction at this point in time.”
S Gopalakrishnan, who was serving as the executive chairman, would be re-designated executive vice chairman and would primarily focus on key client relationships and broader industry issues, the statement said.
SD Shibulal would continue to be the managing director and CEO of the company, it said.
In August 2011, Kamath was appointed chairman, succeeding Murthy, who was made the chairman emeritus post his retirement. Also, the then CEO and MD S Gopalakrishnan (Kris) was elevated as the executive co-chairman, while COO SD Shibulal filled in Kris' position.
It remains to be seen how the market reacts to Mr Murthy’s appointment as an executive chairman. In five out of last eight quarters, analysts have been consistently way off the mark in estimating Infosys's results despite continuous interaction with the management. However, this stunning saga not only shows the quality of analysts but also shows how things have changed at Infosys. (When will analysts be realistic in their expectations about Infosys?)
There was a time when Infosys set the standards on corporate reporting in India. It was the first company to start reporting quarterly results much before it became mandatory. Also, for years, Infosys surprised the market with its conservative guidance and superlative actual results. It believed, in the words of founder NR Narayana Murthy, in the principle of under-promise and over-deliver.
Now, since Narayana Murthy is back at the helm, it would be interesting to see if he would be able to keep his words again.
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
Historical data of NSE website is not showing any data of such kind as reported here.
Nandan left Infosys for Red Bacon light. After they became 1 Billion company their focus completely changed from Employee friendly to BSE friendly that's when Mohan Das Pai took over HR after Hema left. Hema was one of THE BEST HR but these selfish guys made her life miserable. Now this old man care only and only about his stocks which he is holding. One the biggest reason why he has joined. Other is biggest threat from Cognizant. Congnizant was always aspired to took over Infosys. They even implemented some of the HR polices of Infosys.
KV Kamath is other selfish member of this Infosys board.
You must be aware that Infosys employee salary must be ONLY with ICICI bank. Check with other counter parts they give their employee option to have salaried account with any bank of their choice.
Trust me even GOD can not change Infosys fate forget about Murthy. He is old man now and this company needs fresh blood.
I am EX-INFOCIAN who has seen rise and fall of Infosys
Murthy talks about ethics. Said his children will never join Infy. Now what has changed?
Murthy and his co-founders have sold majority of their holdings and made money. Fine no issue they created a over valued company. But to me it was an acknowledgement by them that their business model has no future.
Like politicians he also seems to believe he is the best and so is his son.
Murthy to me was always over rated. I respect him for what he did, but I distrust an entrepreneur who sales his own dream company. if he says he cannot find anyone able to lead the company it is pathetic admission of succession process.
I remember speaking to one founder who I asked is not succession part of strategy for a company and he said no not at all! he was correct! At least for Infy!
Re-entry of Mohandas Pai would had been a better prospect for INFY than NM.
That we are in world of archives is amply borne out by some brilliant anecdotal references.
ML rewards its readers with an analysis that clearly and deftly demonstrates its knowledge of the company and its impeccable past.
The surgical precision of the questions raised in the present scenario are so pertinent that it would be pity to let go of any wrong doing.
Debashis and Sucheta have the uncanny knack of asking the tough questions, now lets see who has the canny courage to take this head-on and not resort to soft options.
There is every possibility that Narayan Murthy, the demi God,will throw it all away in his second innings. As much as business, in general has got delinked, from politics, large organisations are juggernauts that cannot be veered by individual/s. Nandan Nilekani, the poster boy, has morphed into a punching bag. Murthy and his cub should watch out for the same fate!