I am a proud ex-Infoscion and still hold a reasonable chunk of Infosys shares acquired through ESOPs that were generously doled out to me while I was at Infy. However, in the stock market world, I have seen year after year that Infosys quarterly financial results seem to be one of the most awaited events in the year, probably falling second only to the Indian National Budget. I was just glancing through some news portals like moneycontrol.com (which is my favorite for stock market tracking). Today, on its ‘Markets’ Homepage, 5 out of the 14 top stories of the day revolve around the impending Infosys results on July 12th ie. tomorrow. There are experts commenting upon their expectations from Infosys, you have commentary on whether Infosys will beat TCS in its results this time around…..it goes on.
Even a day before the results, the markets today were jittery. The entire IT pack fell, thereby making the entire sentiment nervous leading to a general sell-off. The Sensex was down and market breadth was negative with advance – decline ratio being 1:2.
Even a day before the results, the markets today were jittery. The entire IT pack fell, thereby making the entire sentiment nervous leading to a general sell-off. The Sensex was down and market breadth was negative with advance – decline ratio being 1:2.
Why does it seem like one company is holding an entire market to ransom? Let’s analyze. In terms of value, Infosys is the sixth most valuable (by market capitalization) company in the stock market, so it is not a big deal as there are 5 other players before it, including TCS. Infosys belongs to the Indian IT sector, which is definitely important in terms of its weightage and size in the markets, but over the years has become more and more mature. Gone are the days when the IT sector was the most happening sector growing at 40-50% in 1 year. It is now facing turbulent times to say the least. Infosys is part of the NIFTY but let’s not forget, there are 49 other stocks on the NIFTY index.
Now let’s look at some factors that make Infosys a great asset. Infosys has among the highest free floats in the market, which means that a very high percentage of the value of its shares are available for trading in the general market. In contrast, there is Wipro where 75% of the entire value of the stock is owned by one person – Azim Premji. Hence, Infosys invites a lot of popular public participation. A very high number of domestic institutions as well as FII’s hold the Infosys stock which means that Infy impacts most of the investors, directly or indirectly. Infosys is an important part of any Mutual Fund portfolio as it has among the lowest volatilities as a stock in recent years. Hence, movement in the stock is never drastic, but more measured. Infosys has great sentimental value as it has been the darling of the bourses for many years. Shareholders have grown their wealth many times since the company’s IPO days in 1994. For example, 100 shares issued in the IPO at Rs 9,500 have become 12,800 shares valued at Rs 4.15 crore (as on March 31, 2011). This is an annual compounded growth rate of 59 per cent, with a total gain of 464,422 per cent.
But all said and done, those days of high returns are now gone. Why then do people still await the results? There is no clear answer. My sense is that they do so because Infosys over the years has marked itself as a leader that inaugurates the results season every quarter. They have been the first major company to come up with their results quarter after quarter all these years. As Indians, it is in our blood, to look to make a good start for anything. Good starts are auspicious. If things begin well, we set ourselves up for better times ahead. Hence, Infy results affect the market sentiment considering they come at the start of the results season. The market looks for leadership right at the start. A positive show brightens up the mood and sets the tone for the rest of the season. It’s like in cricket, a side looks to make a strong start to its batting innings. If the start is good, it cheers up the mood in the camp whereas if it is bad, it just puts the camp under a lot of pressure.
Well, good luck to Infosys for tomorrow!! I say this in the larger interests of the markets as a whole as I know that a good start may just be the trigger the market is looking for to come out of its listless and directionless movement over the last 1 year.
Posts
