Infosys from being the most predictable company has now taken the pole position in being the most unpredictable. 2 qtrs of 20% movements … What transpired?
How can a company /mgmt which is unable to communicate clearly to investors about business outlook and performance – be doing the right things with its clients in a service industry?
Should one argue that the company has been consistent and it was the analysts cum investor community which fell into the Trap of Greed and fear. While last time I vocally went in support of analysts saying that they are victims of mgmt guidance – Did they become over exuberant – looking at only the silver lining …when the picture painted was ominous?
While – analysts and company both messed it up royally – this is the time for shrewd investors to bet against momentum.
Recently was very positively surprised by ZEEL mgmt to correct – analyst expectations – something INFY can learn from. ZEEL while has had a weak past of CG …atleast the promoters are Cognizant of the permanent impact on surprising the street negatively and the need of managing expectations.
Personally – I prefer companies like Infosys – were they give opportunity for the level headed to swim against the tide and avoid the noise …. Creating opportunities for smart investors. They add FUN to An analyst life and in situations created by INFY only experience of understanding market participants behaviour matter.
Also – had the current leadership not been founders of the company – should they not be FIRED.
MY Earlier note –
Infosys q3 results – something is definitely wrong…very very wrong.
Infosys q3 results were greeted by e Big Bang by the street with the stock surging close to 17% … That’s a record for any NIFTY stock. But this movement raises many many questions … How can a company which is covered by maximum analysts …more than 70 in last count …get it so wrong and be so significantly surprised. This raises questions more on the companies ability and intent … Less on the analysts intellect. I being an analyst and have spent considerable time in analysing analyst behaviour can appreciate why the analysts got it wrong …. SIMPLE : company recent performance has been poor. After years of consistently beating its own guidance … The company had faltered in the last few quarters. Past track record of INFY had been consistently meeting or beating its own guidance and common analyst practise was to forecast 2-5% above company guidance. This was in complete sync with Narayan murthy business maxim – to retain trust of investors, it is better to under promise and over deliver.
Infosys started a culture of giving out qtrly guidance … Because NRM felt that investors should be aware of as much as data as the company was aware of. Also, NRM clear belief – when in doubt, disclose. So what transpired in this quarter was a miracle – Infosys after having unable to meet the guidance in the last few quarters had faced a lot of investor wrath… As investors believed that the company had lost its touch. Also, this believe was further supported by the mgmt who … Kept guiding for inability to meet numbers again during the quarter. This led to MUTED expectations and lower multiples. However, the results were totally different…. Results were strong on all counts.. High volume growth and rate increase.
So why did the mgmt give a wrong impression of business condition/performance ?
Did this action create value for share holders or destroyed value ?
With the disclosure of being an analyst – I strongly argue the case for An analyst not being at fault …as it is always better to be conservative and one should rarely make forecasts against mgmt guidance. In this case … Had it been any other company … doubts would have been raised if the company did this deliberately for the interests of few. People would have studied if – any esops were given recently of a low strike price.
While – I maintain my TRUST in believing in the value system of INFOSYS … I believe their are valid questions of what went wrong with investor communication.