Date: 10 July, 2007
On the eve of Infosys resutls tobe announced tomorrow, Udayan Mukherjee,Stocks Editor, CNBC TV18 says a bit of bad news on first quarter surely.That pretty much is expected by the Street because Infosys is typically notin the habit of coming below or delivering numbers below its guidance forthe quarter. But that's almost certainly what it will do tomorrow. One wouldbe extremely surprised, if they don't slip on their first quarter guidanceand deliver numbers, which are way below it. In fact, adjusted for some taxrise backs in the previous quarter, you were expecting something like a13-14% sequential fall in profits, that's quite alarming by Infosys'standards. But that's just half the story. That's pretty much in the price.We have all seen how smartly the Rupee has appreciated versus the Dollar inthe last few months. The figure is 6% plus and therefore it is onlyunderstandable that margins will be under huge pressure tomorrow for thefirst quarter.The more important question is what it means for the full year guidance ofInfosys and that is critically, what will determine how Infosys movestomorrow, how the IT sector moves tomorrow and how even the overall marketmay move tomorrow, because if Infosys comes in and lowers its guidance forthe full year, then I think the stock might be in for a fall, regardless ofits recent underperformance. The big question from a market perspective iswhether volume growth, business volume growth and any kind of pricing orrate increases can offset a lot of the damage of the Rupee appreciation andthat's what Infosys has to come out and say tomorrow.That's a good question. It all hinges around what kind of guidance, annualguidance, Infosys comes out with. If in the context of what has happened tothe Rupee, Infosys comes out and says tomorrow that yes, we have gonethrough pain in the first quarter but we still believe we can hold on to ourannual guidance of between Rs 80-81 earnings per share. If they can say thatmuch, not up the guidance a little bit, which would have been theexpectation, had it not been for the Rupee, then I think the stocks mayrally, because these have been big under performers and even status quo forthe full year would be reason enough for the market and the sector to rallyfrom hereon.However, if Infosys comes in and says that no because of the Rupee, I nowhave to scale down my EPS guidance in Rupee terms for the full year and Iwill not be able to do much more than Rs 77-78 per share, then I think thestock might actually fall a bit because there has been a 5-6% move on thestock, in the last few days on the way up. If the EPS guidance is anywherebetween Rs 77 to Rs 80, I think the stock may remain flat, just move in at3% up or at 3% down kind of band. So this is broadly the horizon of what canbe interpreted as good news or bad news by the market tomorrow. It just hasto say that it is status quo for the year and that would be reason enoughfor the market to rally; the expectations are as you said, quite muted thistime.I think it is quite important from a market perspective because this markethas reached an all-time high and gone onto 15,000 with absolutely no supportfrom technology as a sector and that accounts for 15% to 20% of the index.So if tomorrow the news is not too bad, then you could probably build acase, after such serious underperformance from the tech sector to startplaying catch-up once again. If indeed it can do that, then that might bethe building block for the Sensex to build above that 15,000 mark andproceed with this rally. If however, at these kind of alleviated levels,Infosys comes in with fairly dire news, because it is a conservativecompany, it may choose to be ultra conservative, with what has happened withthe Rupee, then I fear that the stock might sell-off and so with it thesector in which case the Sensex and the Nifty also might sell-off a littlebit.So, it is important for the sector particularly because of how badly it hasunder performed for the last 3 months and it would be seeking some good newsfor Infosys to climb up and play a bit of catch-up. But it is difficult topredict, which way it will crack up tomorrow. We'll just have to wait forthe event and watch.