Infosys share price is likely to see a big slide when market opens on Tuesday amid the firm facing allegations of indulging in 'unethical' practices to generate more profit and revenue from an anonymous employee group, named as 'Ethical Employees'.
Infosys share price which closed 0.18% or 1.35 points lower at Rs 767.75 on Friday is likely to see a 10-15% downside in the near term, according to Harit Shah, Research Analyst at Reliance Securities.
In a complaint letter to the board of Infosys and the US Securities and Exchange Commission (SEC) on July 20, the group has claimed that the company asked them not to "fully recognise costs like visa costs" in last quarter to earn more profit. It added that when the auditor pointed it out, the issue was postponed by the company.
Commenting on the development, Shah said, " This equates to a corporate governance issue. Deputy CFO has also quit. This in itself is an indirect admission that something is rotten. Stock will now languish 10-15% lower in the near term."
The group said they were prevented from sharing data on large deals and important financial measures during board meetings. "CEO and CFO are asking us to show more profits in treasury by taking up risks and make a change to policies. This will provide short-term profits," the group alleged.
Meanwhile, Infosys in a statement said it's investigating the charges. "The whistleblower complaint has been placed before the Audit Committee as per the company's practice and will be dealt with in accordance with the company's whistleblowers' policy," the IT firm said.
Shah said, "It was really disappointing that a company that has long been viewed as a 'poster boy' of corporate governance in India has seemingly fallen to such levels. It puts several questions on board-level processes at the IT major, which is even more disappointing given that when founder Nandan Nilekani was brought back on the board, his specific focus was to ensure high corporate governance standards post the Vishal Sikka fiasco."
Citing the corporate governance issue in this development, Shah said, "The market is very unforgiving of companies that have corporate governance issues and while it would not be fair to directly jump to conclusions, this issue appears quite ugly at least on the surface. While we await developments on the board investigation, given the stock is so widely held, it is very likely that some investors will vote with their feet and sell at least some of their holdings."