Infosys rift: Vishal Sikka enjoys strong backing of institutional investors

In the case of foreign institutional investors (FIIs) or foreign portfolio investors, the shareholding has come down from 41.5 per cent to 39.02 per cent.

Written by Sandeep Singh | New Delhi | Updated: February 12, 2017 1:15:33 am
infosys, infosys revenue, infosys net profit, infosys profit, US presidential election, Brexit Europe, business news Infosys CEO Vishal Sikka in Bengaluru on Friday. PTI

On the face of it, Infosys founders’ unhappiness with Vishal Sikka, its managing director (MD) and chief executive officer (CEO), might seem similar to the move by Tatas when they decided to oust Cyrus Mistry on the grounds of deviating from the culture of the company among others reasons. But, large investors and the change in shareholding patterns of institutional investors suggest that the institutional investors both domestic and foreign, who command an aggregate shareholding of 57.89 per cent in the company, have reposed their faith in the management of Sikka and they will back him if it comes to voting.

Over the last 30 months since his appointment, while Infosys promoters have reduced their holding in the company from 15.94 per cent in June 2014 to 12.75 per cent at the end of December 2016, the mutual funds (MFs) have increased their holding significantly from 4.81 per cent to 7.42 per cent in the same period. While the insurance companies have increased their holding from 9.2 per cent to 11.2 per cent, Life Insurance Corporation has increased its holding from 3.8 per cent to 6.6 per cent.

In the case of foreign institutional investors (FIIs) or foreign portfolio investors, the shareholding has come down from 41.5 per cent to 39.02 per cent. Experts say that it has been in line with the broader FII trend as they have been practicing caution on investing in emerging economies. The net FII investment for FY16 and FY17 (till February 9, 2017) has amounted to an aggregate of only Rs 2,212 crore.

“The institutional investors of Infosys feel that Vishal Sikka is doing a good job and he enjoys their confidence. While the founders are questioning Sikka on the issue of severance package and high salary, we feel that it is not such a big issue and it was approved by the Board and was also disclosed,” said the CEO of a leading MF that has substantial exposure in the company.

There is also a feeling in the market that while the founders are out of the board and the company’s management, they are unnecessarily overstepping. “If they had an issue, they should have raised it in the AGM/EGM and gone for voting rather than raising it in public. While the founders have done a good job with running the company in the past, on the ongoing issue, I don’t think they are on the right track,” said a top official with another fund house. He further added, “Infosys founders had an informal pact on who will take over as the CEO one after another and they did not even bother to search for the best possible talent for the job. Is it not a corporate governance issue.”

Even as comparisons are being drawn between the move by the Tata Group and those by the founders of Infosys, leading market experts say that Vishal Sikka is on a strong footing. “The founders only have 12.75 per cent shareholding and the majority of the stake is held by institutional investors who are fully backing the management and the board of the company. Big investors of the company are quite pleased with the way Sikka is managing the investors’ fund and working towards growth and profitability of the company. Also, in the case of Tata, the institutional investors knew who will emerge victorious and so most of them sided with Ratan Tata,” said the head of a leading financial services company.

J N Gupta, co-founder and MD of Stakeholders Empowerment Services, said that the issue of Infosys’ founders not grooming a professional in the company for the CEO’s post is much bigger corporate governance issue than the issue of severance package to an executive.

“If you fail to develop a succession line, it’s a bigger corporate governance issue as it shows your interest not for the company but for yourself. However, severance package is something which is in the interest of the company. If the management feels that an individual has to go out of company and they need to give severance pay for it, I think it is in the interest of the company,” Gupta said.

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