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Sebi scanner on Infosys stock movement, corporate governance

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MUMBAI: Market regulator Sebi is having a look at the Infosys stock price movement in the run-up to its CEO Vishal Sikka’s sudden resignation and the company’s Rs 13,000-crore share repurchase programme. The market regulator has also asked stock exchanges about the disclosures from the company relating to these recent events. Officially, both the exchanges denied any communication from Sebi relating to the Infosys saga, but sources told TOI the regulator’s queries were part of its routine surveillance process. As a practice, Sebi does not comment on any ongoing investigation or enquiry on a single regulated entity. Asking stock exchanges to examine possible lapses in Infosys’ corporate governance and insider trading norms is the first step of Sebi’s surveillance mechanism.

Shares of Infosys dropped 5.4 per cent on Monday to a three-year low at Rs 874, slumping for the second consecutive session since Friday when Sikka unexpectedly announced his resignation amid a row between the company’s board and its founders, particularly N R Narayana Murthy, who has raised concerns over some of the management decisions.

Since Thursday’s close, investors have lost Rs 34,000 crore in market capitalisation, making them jittery that the tussle between the founders and the board could escalate, impacting the company’s long-term growth. The fall in share price has also taken Infosys out of the club of the country’s 10 most valued companies in terms of market capitalisation. Moreover, some of the brokerages such as Nomura, have downgraded the stock following the turn of events at India’s second biggest IT services company.

“Sebi and stock exchanges have inter-dependent surveillance mechanisms in place,” said Sumit Agrawal, founder, Suvan Law Advisors, a firm specialising in regulatory affairs. “On the basis of trading in a company’s stock, alerts are generated at Sebi and stock exchanges as indicators for possible violations. These alerts may be for possible insider trading, non-disclosure on acquisition of certain thresholds beyond the prescribed limits, large off-market transfers, trading by company or promoter- related entities, among others. Stock exchanges submit their snap investigation reports to Sebi and work in tandem to ensure effective market surveillance,” Agrawal added.

Observers of Infosys have questioned the timing of the company’s share buyback announcement, which was a day before Sikka’s resignation. “The board announced plans to go ahead with buyback when they knew the CEO was leaving. Investors bought heavily into the counter on Thursday (stock was up 4 per cent) only to realise the next day Sikka was leaving (stock lost more than 10 per cent). This massive erosion of wealth alone is sufficient for examination. Why make a filing on a buyback plan when the board was besieged by a significant corporate development?” asked Anil Singhvi, chairman of Ican Investment, a corporate advisory firm.