A comeback rally in Indian shares ran into rough weather after the CEO of software services bellwether Infosys Ltd abruptly quit the company, citing a long-running feud with the company’s founders that became increasingly acrimonious.

“I cannot carry out my job as CEO and continue to create value, while also constantly defending against unrelenting, baseless/malicious and increasingly personal attacks,” Vishal Sikka, an acclaimed technology expert who took over as the boss of Infosys three years ago, wrote in a blog post on Friday. “The distractions, the very public noise around us, have created an untenable atmosphere.”

The resignation of Sikka, who was steering the company towards high-value innovative-technology such as artificial intelligence and automation from the basic code writing that depended on cheap labour, sent its shares tumbling — wiping out about $3.5 billion (Dh12.85 billion) in market value by the day’s end.

At the core of the ugly spat was the cultural difference between the original promoters of Infosys, led by founding chairman N.R. Narayana Murthy, and the Palo Alto, California-based Sikka, who was the chief technology officer at German software group SAP before joining Infosys. Murthy’s egalitarian roots could not stomach Sikka’s jet-set style.

Investors, however, loved Sikka who delivered total returns up to 15 percentage points above rivals Tata Consultancy Services and Wipro. Infosys shares had risen 20 per cent between August 1, 2014 — the day Sikka took charge — and Thursday’s close, outpacing a 5 per cent gain in the benchmark technology index of the National Stock Exchange over the same period.

Troubles ahead

“Vishal Sikka’s resignation from Infosys at this crucial stage of business transformation is a significant dent given the differentiated path the CEO led the company in the last three years,” brokerage Emkay Global Financial Services said in a note.

“The stock may command lower valuation given the absence of positive triggers and incremental uncertainty in coming period.”

The imbroglio puts the spotlight on a weak spot in corporate governance in India, where most big industrial groups are family-controlled and are run as private fiefdoms even after being listed on stock exchanges and where public money is at stake. Professional managers are distrusted and often shunted out on a whim.

Infosys was founded by a bunch of engineers in the early 1980s and it grew exponentially after it went public in the 1990s, thanks to the massive global demand for reworking computer codes at the turn of the millennium.

It became the flag bearer of outsourcing deals as digitalisation and a massive drop in communication charges shifted a bevy of jobs — from attending calls at utilities to ticketing and accounts — from high-cost Western countries to India.

As earnings soared the company built world class campuses, embraced many modern practices of transparency, and the soft-spoken Murthy became the beacon of corporate governance.

Ironically, it is this reputation that risks being shredded. Sikka was the first CEO outside the founders to helm Infosys, and Murthy’s unrelenting public squabbles — while holding no official position in the company — have left a bad taste.

Infosys, the country’s No 2 software services exporter that is also listed in New York, will face a bigger dilemma to find a replacement from outside.

“The worry would be the founder issue, whether it is put to bed or not, it cannot continue in this fashion,” Ravi Venkatesan, co-chairman of the board, told an analysts’ conference after Sikka’s resignation.

Saving grace

Proxy advisory firm IiAS is rooting for bringing back Nandan Nilekani, one of the Infosys founders and a former CEO who later helmed the government’s Aadhaar Card, a unique identification code, programme. He should be brought in as “non-executive chairperson”, it said in a report.

“He has kept pace with technology advances, has been instrumental in digitalising the country, and is well-networked with the bureaucracy and global leaders,” IiAS said. “He is best-positioned to shepherd the company as it finds a successor and reinvents itself. And, he possesses the stature to bring an end to the public discourse.”

“To our mind, this is an optimal solution, given the multiple agendas the board and the company need to manage. The challenge is to convince Nandan Nilekani to return.”

On Saturday, the board of Infosys approved an up to Rs130 billion (Dh7.43 billion) share buy-back programme, a plan that was on the cards for long. The company will buy back 113 million shares at Rs1,150 each — an almost 25 per cent premium to Rs 923.10 at close on Friday, a day the stock fell nearly 10 per cent.

Bowing to a demand from the founding members, the board had announced in April that the company would return up to $2 billion to shareholders. The company’s free reserves stand at more than $6 billion. Rivals Tata Consultancy Services have spent Rs160 billion and Wipro Rs110 billion to buy back their respective shares.

The Infosys buy-back should enable the stock to perk up when trading resumes on Monday, but Sikka’s exit will be a millstone on any upside. The board will have to quickly convince investors that it is capable to rise above petty squabbles and keep the focus on overcoming the formidable challenges facing the software services industry.

Bumpy ride

Friday’s sell-off trimmed gains in the top-30 Sensex to nearly 1 per cent for the week at 31,524.68, and the 50-share Nifty rose 1.3 per cent at 9,837.40.

While abundant cash holdings should underpin stocks over the near-term, a rise in inflation that could delay any further reduction in interest rates, dwindling factory activity because of teething problems with a new national sales tax and slowing corporate earnings growth are strong headwinds that could pose risks to upside.

Retail inflation in July accelerated faster than expected at 2.36 per cent, halting a three-month slowing trend, from 1.46 per cent in June, but is still well off the central bank target of 4 per cent.

“Policy rates have likely plateaued for now, with room for rate cuts requiring a sharp downward drift in core inflation or growth slump in FYH2,” said Radhika Rao, group economist at DBS Bank.

Minutes of the central bank meeting earlier this month, when the repo rate was cut by 25 basis points to six per cent, showed that members of the monetary policy committee were worried about inflation picking up pace as well as the consequences of large farm loan waivers by some state governments.

Analysts at Bank of America-Merrill Lynch said in a note that the central bank was likely to pause in October and deliver another quarter point rate cut in December.

It said that inflation risks were being “overdone”, and a cool-off in price rise will be one of “compelling factors” that will make the Reserve Bank of India to cut rates.

— The writer is a journalist based in India