Infosys, which until recently was touted as the poster boy of good corporate governance is now in the news for
alleged governance lapses! The complaint to SEBI, SEC and the Infosys Board by whistle
blowers, who call themselves ‘Ethical Employees’, have accused the top
management of wrongdoing.
But then Infosys is no stranger to controversies ever since Vishal Sikka
tendered tendered his resignation after the founders, in particulae N R Murthy,
kept raising, what they regarded as governance lapses in the company. But if
one scours the history of the company, one can not but be amazed by its rise to
eminence.
Infosys was established by NR
Narayana Murthy and six engineers in Pune with an initial capital of $250. It
made an initial public offer in February 1993 and its shares were listed on
Indian stock exchanges on June 14, 1993. Trading opened with a huge
premium of Rs 145 per share, compared to its issue price of Rs
95 per share. In March 1999, it issued 20,70,000 American depository shares
(equivalent to 10,35,000 equity shares of par value Rs 10 each) at $34 per
ADS. The same was listed on the NASDAQ National Market.
But once market
realised that the regulators are considering the latest complaint seriously,
the shares of IT bellwether Infosys opened with
a massive gap down of over 16% on 22nd October 2019, and shaved off
nearly Rs 46 thousand crores of investors wealth. The chart below provides the market
capitalisation of Infosys through many mile stones
But the billion dollar question is will Infosys rise from the ashes and
should investors consider fresh exposure to the scrip given the lower valuation
post the meltdown in the share price. A look at the company’s past performance
would indicate some answers to the above questions
Back of the envelope calculations suggests that
if one had invested Rs 9500 or bought nearly 100 shares of Infosys back in
1993, it would be worth over Rs 3.3 crores as on October 22nd this
year, that is CAGR of over 35% despite the fall and without reckoning with
generous dividends, buybacks and attractive conversion into ADRs!
The management has been generous in granting
bonus since its listing. It has offered 1:1 bonus shares in 10 out of 11 years
in which it declared a bonus issue. In 2005, it announced a 3:1 bonus issue. It
had split the face value of its shares from Rs 10 to Rs 5 in 1999 (2:1). The
share has been quoting on an ex-split basis since January 24, 2000. Given below
are details of bonus and splits given by the company
• In 1994, company declared 1:1 bonus
= Investor receives 200 shares
• In 1997, company declared 1:1 bonus = Investor receives 400 shares
• In 1999, company declared 1:1 bonus = Investor receives 800 shares
• In 1999, company split the share of face value Rs 10 to Rs 5 = Investor
receives 1,600 shares
• In 2004, company declared 3:1 bonus = Investor receives 6,400 shares
• In 2006, company declared 1:1 bonus = Investor receives 12,800 shares
• In 2014, company declared 1:1 bonus = Investor receives 25,600 shares
• In 2015, company declared 1:1 bonus = Investor
receives 51,200 shares
Total worth as of 22nd October 2019 = Total number of shares 51,200 x 643.55
= 3,29,47,760
Moreover, the price action in the
counter suggests that every time Infosys has seen a sharp fall it has bounce
back as per data given below.
| Date | Biggest 1 Day Fall | 1 Year Return |
|---|---|---|
| 17.05.04 | -11.20% | 88% |
| 19.05.09 | -13.40% | 70% |
| 13.04.12 | -12.70% | 21% |
| 12.04.13 | -21.30% | 45% |
| 22.10. 19 | -16.20% | ?? |
And if you are a believer in technical analysis,
the charts indicate, as per “experts”, that 600 is a strong support level!
India’s Digital Future
Away from the public glare a quiet battle is raging for control of the global digital business. At the core is the US quest to continue its dominance of digital business. Today, US technology firms dominate the digital business. But continued dominance would require the free flow of data across countries. The US and its allies are doing everything to ensure this. The outcome of this battle would decide the fate of the digital business in most countries. The US firms Google, Facebook, Amazon, Airbnb, Visa/Mastercard, Uber, Netflix and Instagram may appear to be doing different activities. But, their main currency is data. They track our digital transactions, chats, roads we travel, countries we visit, hotels we stay in, restaurants we eat in, food we order, medicines we buy, and bars we frequent. The game is in collecting extensive data free of charge and selling value-added services created from this data.
Some of the uses to which such data is put threaten even functioning of democracies. The massive data breach at Facebook in 2018 not only opened a can of worms on potential misuse of social media platforms for influencing a nation’s political destiny, but also sent out a warning on the perils lurking in the digital world. And now we have the alarming disclosure made by WhatsApp that several jounalists and civil rights activists in India, particularly those who may not be aligned with the current political dispensation, have been under surveillance through a spyware called Pegasus, developed by an Israeli tech company called NSO Group. The government is yet to come clean on this issue and this raises concern, particularly under a regime which in spite of its cant on ‘transparency’ has gone about systematically diluting the Right To Information (RTI) Act. The concern is, that the present government has been slow to put in place laws to protect users, particularly vulnerable citizens, not just from private entities that mine data without consent but also from state actors who misuse surveillance powers.
Data has another significant use. With the advent of IOT
(Internet of Things), digital “Personal Assistants” like Siri or Alexa are
becoming inreasingly popular. They depend on ‘Artificial Intelligence’ (AI).
Developing such AI tools requires scanning terabytes of unstructured data to
identify patterns of our thoughts, actions, behaviour and create applications
for all conceivable uses. Most of the data, however, are generated in China and
India. India produces more data than the US and the EU put together. China does
not share data with US firms. So if India also restricts data flow, it will hit
the US-AI strategy. Today the US is collecting data freely from all countries,
except China. But the US knows this will change soon. Technology and business
models are easy to replicate at low cost. Soon as India and other countries
develop similar tools, they may regulate data flows preferring local firms over
the US firms. Or these countries may decide to charge for data. Any of this
will kill the US business model. The US is putting in all its might to stop
this from happening.
It is true that India has a long term strategic relation
with the second latgest democracy. But given President Trump’s ‘America First’
regime and above denouement, the unequivocal articualtion by Piyush Goyal,
India’s Commerce Minister at the G20 Ministerial at Tsukuba, Japan, on June 8
and 9, that India will not join the e-commerce negotiations at the WTO until
issues like data flow and welfare of the poor are resolved, was timely and
appropriate. To secure its digital future, India, among other things, needs to
adopt the following measures:
- Put in place
a robust legal framework for regulating e-commerce, data protection, data
localisation, cyber security and unauthorised use of data for surveillance by
private and state entities. New draft e-commerce policy is a welcome step.
Clear laws with proper regulations on data flow will encourage global and local firms to invest in India. - India’s
weakness is that we do not yet have global brands in the digital space. We need
to set up free email service and create an India focussed search engine, invest
in high capacity cloud servers and make them available at low prices. Hosting
on Indian servers must be attractive for local businesses. NIC has the
expertise and has already developed many platforms for government use. The
government may revive NIC, hiring the best talent for AI research and other
vital areas. - Many countries
still do not grasp the significance of data flow, server localisation, etc.
India could collaborate with them given the talent at its command. Once our
laws and platforms are ready, we may take the call to join any international
negotiations. - India needs to be aware of the
consequences of not joining the negotiations and have a plan ‘B’ ready. Today,
only 73 of the 164 WTO members support negotiations on e-commerce. If India,
viewed as a software giant joins, all remaining countries will participate.
This will soon ensure that the de facto dominance of the US in digital business
becomes de jure.
Digital business accounts
for a third of global GDP now, and its share will only increase. Reclaiming our
lost digital space should be our
priority as best jobs and high growth would flow from this. An important
enough issue to deliberate and decide on with due care , but urgently.
