Regulator asks stock exchanges to examine violation of disclosure and corporate governance norms
The Securities and Exchange Board of India (SEBI) is examining whether there were any lapses in corporate governance or disclosure requirements by Infosys.
The SEBI move comes reportedly after a few shareholders approached the regulator following the resignation of Vishal Sikka as the chief executive officer amidst allegations by co-founder N.R. Narayana Murthy.
According to persons familiar with the development, the regulator had asked the stock exchanges to look into this matter by seeking clarification from the company. Exchanges, being the first-level regulators, often seek clarification from companies based on regulatory directions or media reports.
Impact on buyback?
The SEBI move could affect the proposed ₹13,000-crore buyback of Infosys shares as well. The regulator could insist on getting a complete clarity on investor complaints before giving a final go-ahead for the buy-back proposal.
“While it is too early to say that an actual probe in on, the process of getting data and information is on, which, typically, precedes any formal investigation,” said a person familiar with the development, who requested anonymity. The regulator had also asked the exchanges to look into the trading pattern and report any unusual activity, he added.
Clearly, the regulatory probe post the feedback received from the stock exchanges could also conclude that the company was fully compliant with the disclosure and listing regulations. Incidentally, Infosys did not attract any adverse action from SEBI when the regulator examined the whistle-blower letter it had received in February.
Mr. Murthy had said that the corporate governance standards in the company were falling after the anonymous complaint alleged that the acquisition of Panaya was made without following proper procedure and obtaining relevant approvals and that the severance payout given to former CFO Rajiv Bansal was in excess of that stated in his contract.
Lawyers specialising in securities market regulations said that the SEBI could investigate a complaint of any contravention of the securities laws received from any investor or intermediary or any other person.
“There are precedents of relief from SEBI where stakeholders have sought quality in financial reporting, transparency and corporate governance,” said Sumit Agrawal, founder, Suvan Law Advisors, and a former legal officer at SEBI.
“SEBI can always direct particular disclosures, seek a specific audit, make due diligence reports public or provide conditional approvals. SEBI has wide powers to deal with the issue, if circumstances demand it,” he added.
Street turns bearish
Meanwhile, going by stock recommendations, it appears that an increasing number of analysts are turning bearish or at least cautious on the stock of Infosys.
According to data from Bloomberg, there are currently a total of 20 ‘buy’ recommendations along with 18 ‘hold’ and 12 ‘sell’ ratings on Infosys. On Friday, there were 34 ‘buy’ reports on the software major.
Since Friday, brokerages such as Equirus Securities, Edelweiss Capital, Dolat Capital, Emkay Share & Stock Brokers, IDBI Capital, Axis Capital, Elara Securities, ICICI Securities, JP Morgan, IIFL and Prabhudas Lilladher have all downgraded the Infosys stock.