Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Infosys Ltd.'s earnings announcement on Tuesday, its first after it unexpectedly lost its top management midway through the last quarter, was never going to shed much light on a shift in strategy.

It's too early for that because the search for a new CEO is still underway. The real significance of the September-quarter release lay in allaying concerns about governance. Specifically, investors wanted to know what -- if anything -- Nandan Nilekani, the co-founder who has since returned to the bellwether Indian software exporter as its non-executive chairman, wants to do about the suspected board-level lapses during the tenure of departed CEO Vishal Sikka. 

N.R. Narayana Murthy, another co-founder, had questioned Sikka over a 2015 acquisition of Panaya Ltd., an Israeli automation-tech company. A whistle-blower had contended that the deal was overpriced and that a generous severance offer (later withdrawn) to a former CFO was actually hush money. Murthy wanted the full report of an external inquiry, which gave the management a clean chit, to be made public.

Sustained pressure from the founders, who own 13 percent of the stock, succeeded in taking down the CEO, the chairman and two other board members. But even with the co-founders back in control, shareholders won't get any more details. "Confidentiality is critical to ensuring the candor and cooperation of whistle-blowers," Tuesday's earnings report said, adding that the allegations were baseless anyway.

Still Rebooting
India's bellwether outsourcing firm Infosys has yet to recover from a spat between a co-founder and a former CEO
Source: Bloomberg

The stock, which dropped 14 percent after Sikka resigned, is up almost 7 percent since then. But while Tata Consultancy Services Ltd., its larger rival, has gained almost 9 percent so far this year, Infosys has fallen more than 7 percent. Both are trailing India's benchmark Nifty index. (Infosys's American depositary receipts were down 4.5 percent in early U.S. trading.)

Put some of that dissatisfaction down to a muddy business outlook. Traditional retailers have no money to spend after losing market share to online stores. Unless U.S. banks have clarity on President Trump's regulatory agenda, and until they know whether the Financial Choice Act is going to become law and the Volcker rule repealed, they won't order a truckload of business software. To that, add a U.S. health care industry that has no idea what is going to happen to Obamacare, and at least three large Infosys client groups would remain on the sidelines for at least a few more quarters.      

Then there's the continuing shift away from clunky on-premise software to subscription-based applications in the cloud. Clients are paying less for legacy projects, forcing vendors to embrace automation. The likes of Accenture Plc are now garnering more than half their revenue from digital products, according to Bloomberg Intelligence analysts Anurag Rana and Gili Naftalovich. However, companies such as Infosys are so used to charging clients for time and effort of code writers, they are finding it hard to switch tack.

No Takers for Old Tech
Infosys revenue growth once again came in below Accenture's, underscoring the challenges Indian software exporters are facing in trying to embrace digital technologies
Source: Bloomberg

No surprise then that the Bangalore-based firm managed only 4.6 percent growth in sales from the quarter a year earlier. That's the lowest in five years and compares with an 8 percent increase for Accenture. Infosys also slashed its full-year guidance and distanced itself from Sikka's outlandish revenue goal of $20 billion by 2020.

Investors would eventually get used to the idea that just as globalization is past its peak, so perhaps are the stocks of outsourcing firms. Infosys now trades below 15 times earnings, almost a 40 percent discount to the Nifty index. That valuation, however, may not fully reflect a permanent discount for poor governance. After all, the disclosures Murthy was demanding have been ruled out. But if there wasn't any wrongdoing or cover-up in the first place, then Murthy's entire campaign against Sikka smacks of a power grab. It's unclear how Murthy would react to that suggestion.

Coming clean was really the better option, Infosys.   

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Adds U.S. trading in fifth paragraph.)

  1. Both figures are in constant-currency terms.

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Andy Mukherjee in Hong Kong at

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Daniel Niemi at