What happens when the stock price of the country’s largest IT giant tanks 13% in a single session?
The markets go into a frenzy, analysts go into an overdrive and investors fret. That’s exactly what happened when Infosys posted disappointing Q4 results on 13 April combined with the double whammy of a lower guidance for 2012-13. Here is a wrap up of the blood bath and the cruel week that followed.
Disappointing Q4 results for Infosys
Infosys shares witnessed a drop of around Rs. 350 on 13 April 2012 post results for Q4. This is the biggest drop in the share price of the IT giant in the last 3 years and wiped off Rs. 20,000 crore in market value. The shares tanked around 13% and the disappointing results also triggered drops in share prices for IT majors like TCS, Wipro and HCL. All the heavyweights tanked substantial losses.
On the same day Business Standard reported that Infosys lost its coveted ‘Most Influential Stock’ status not only to Ambani led RIL, but also fell behind ITC. In the trading sessions that followed, Infosys continued the losing streak and losses widened. At end of day on 16 April, the stock which was hovering around the Rs. 2,800+ mark closed at Rs. 2,360. The stock lost in excess of 15-16% since the blood bath began on the 13th. Analysts and market gurus are pegging a subdued forecast for Infosys and not surprisingly so.
Reports of losing 2nd place to Cognizant
If the blow from disappointing results was not enough, the lowered guidance for growth in FY13 puts Infosys trailing behind the industry growth estimates by Nasscom. The US economy is not in its best of shapes and if Infosys continues to chase the notion of ‘low volume, high margin’, it could very well lose its 2nd spot to rival Cognizant.
Reduced hiring activity at Infosys for 2012-13
Late last week, Infosys announced that it would be making 35,000 gross additions to its workforce in 2012-13. While that is a staggering number by itself, it is more than a 22% drop from its hiring levels in 2011-12 when it hired in excess of 45,000 personnel.
Infosys freezing salary increments
"Today morning after our management council meet we announced that there will be no hikes, of course, employees will understand" said Nandita Gurjar, HR Head, Infosys.
This bone chilling announcement by the IT exporter came as it continues its battle with a weaker global economy and a lower growth guidance for 2012-13. Has this ever happened before? Yes. Infosys delivered a similar announcement back in 2008 but later brought back the smiles on the faces of its employees as it gave a near 10% raise in pay. While promotions don’t stop, increments do.
Whether this results is higher than average attrition or not, only time will tell.
Infosys going through tough times, accepts CFO V Balakrishnan
CFO and Member of Board V Balakrishnan spoke to ET Now today and accepted that the company is going through tough times. He voiced concerns for growth and volatility in the business environment which leads to degeneration in the company’s ability to predict and forecast. When quizzed about the weakened and lower guidance the CFO said "Finally we delivered 15.8%. So you are living in a very volatile world. Our guidance is a statement of fact. It can be positive and negative depending on how the world environment is going to move. We have given a guidance based on what we know at this point of time."
A weak US economy and fragile European counterparts are adding to the company’s woes as most of Infosys’ revenues from these two regions. Less hiring activity combined with the news of a freeze in increments, all seems to be going against the tide for the IT giant.
However it should be noted that there is really nothing wrong with the core fundamentals of the company. Infosys reported that it had 3 deals worth more than $100 million and a total of 5 large deals in 2011-12. Yes, the agencies have downgraded the stock and investors are giving it a massive thumbs down. But like Balakrishnan puts it "Companies can’t be run based on market reactions. You have to take decisions in the interest of the company’s long-term goals."