Investors back CEO Vishal Sikka

Investors also appreciate the role being played by the founders; analysts, too, remain unperturbed

Large investors of Infosys, both in India and abroad, have come out in support of Chief Executive Officer Vishal Sikka, and said the promoters and board of directors should back him to execute his strategy.

They have also asked for clarification on the role of founders not associated with the company in an executive role, while appreciating what they’d done to improve corporate governance. They said they were hopeful the current imbroglio would be resolved easily.

An official at Life Insurance Corporation (LIC), which owns 6.6% stake in the company, said it would seek comments from the management on the charges made by founder N R Narayana Murthy on governance issues. Especially on the high severance package to former chief financial officer Rajiv Bansal of 24 months’ salary (Rs 17.38 crore) as compared to three months’ salary.

The auditors’ report for 2015-16 does not contain any qualifications, reservations or adverse remarks against this payment, the LIC official said.

Adding that according to the state-owned insurer’s policy, it would not unsettle the present management, led by Sikka, unless nudged by the government to do so.

In the recent boardroom battle between former Tata Sons chairman Cyrus Mistry and interim chairman Ratan Tata, LIC and other government institutions had backed Tata, with the motive of bringing stability to the group, the official said.

Infosys founders, led by Murthy, have said they were concerned about the large payment and other actions of the board.

The LIC official declined to comment on whether or not it would support R Seshasayee. Former directors Mohandas Pai and V Balakrishnan have called for his resignation, over alleged governance issues and disclosure lapses.

Among foreign portfolio investors (FPIs), the OppenheimerFunds, which owns a little more than 2% in the company, said in the past 10 years, it had witnessed patches of unusual turmoil in management and vision at Infosys, with share price performance signalling shareholder exhaustion with internal dissonance, management volatility and internal intrigue.

“We have been enormously pleased to see the stabilising hands of Vishal Sikka, who has improved underlying operating performance and begun to articulate a coherent strategy to a firm beset by a host of structural challenges to the aging offshore information technology service industry,” Justin Leverenz, portfolio manager of Oppenheimer Developing Markets Fund, said in a letter to the Infosys board.

Managers of India’s equity mutual funds (MFs), who own shares of Infosys worth Rs 16,500 crore, have taken a neutral stand on the events unfolding at the company as far as their investments in the stock are concerned. According to them, the issue can’t be compared to what had happened between Tata and Cyrus.

“Prima facie, I do not see any alarm at the recent developments. The issue is not big and can be easily resolved. The CEO has to be given more time. We had been adding Infosys shares in our portfolios over the past few months, since it slipped below the Rs 1,000 mark,” said a chief investment officer, who did not wish to be named.

Investors also appreciate the role being played by the founders.

According to a senior MF executive, “Murthy has made it clear that he would not interfere with the Infosys management but will pinpoint if there is any issue in the corporate governance. I think it is clear that the founders respect the current CEO and are acting as watchdogs if something is not up to the mark. What more clarity would investors like us want? Problems in corporate governance have been brought into the limelight and will be addressed well. There is no reason for us to be concerned. There is no question of liquidating Infosys at this stage. The company is good and we have no alternative for it in our holdings.”

Investors have reasons to be happy, as the shares have gone up by 14% as compared to the BSE Sensex, up 11%, since Sikka became CEO in August 1, 2014.

According to regulatory filings on stock exchanges as on December 31, the top investors of Infosys include LIC, followed by the Government of Singapore (2.4%) and Oppenheimer Developing (2.13%).

Among domestic institutional investors, HDFC Mutual Fund, ICICI Mutual Fund and ICICI Prudential Life Insurance are the major shareholders, owning between 1.2% and 1.5% stake.  

While the founders own 12.7% stake in the company, FPIs own 39%, domestic insurance companies own 11.3% and Indian MFs own 7.4% in Infosys. American depository receipt (ADR) holders accounted for 16.8% of the equity, and BlackRock owns 5% stake through by ADRs.

Analysts, too, remain unperturbed.

“We believe, this (controversy) should not weigh on the stock. Sikka wrote to employees that the company is performing in line with the industry despite challenges and given its new strategy led by IP creation and non-linear growth it will come out a winner in the long run. Sikka has led Infosys back to its lost glory after his appointment,” said a report by Maybank Kim Eng Securities giving a “buy” rating on the stock to its institutional clients.