As a kid, I remember watching a play at our annual school function. The title of the play was ‘The Emperor has no Clothes’. Over the last 18 months or so, barring the odd quarter, I have felt that Infosys, while still being a satisfactory and steady performer, has NOT exactly been the gross outperformer that the markets often make it out to be.
For the record, during the calendar year 2006, Infy, notwithstanding a liberal bonus issue and hefty dividend payout that not only depleted its reserves but also distracted some attention from its average financial performance during the year, is return-wise, more or less on par with the BSE Sensex .
Yes, the Infosys result has become a major media event, second only to the announcement of the Union Budget, but the question that comes to my mind is – having scaled the peak, has Infosys begun its downward journey ?
For those to whom this question borders on the blasphemous, I must remind them that I had made similar sounding blasphemous statements about Hindustan Lever (Infy’s equivalent in market demi-God status then) in the late 90’s.
The rationale there was simple and I will cite merely two common-sensical points to buttress my case. The famed FMCG company’s products were no longer given display priority in shops and bazaars plus the fact that the products on the shelf had started getting closer to their expiry dates, than their date of manufacture.
That the numbers which followed, gradually deteriorated and resultantly, the market turned its back on its once favourite was testimony to what we had noticed early. As I never tire of commenting at my training programmes and management school lectures, numbers are more useful for post-mortems than diagnosis for those professing to be equity researchers .
In case of Infy, perhaps purely by accident, they seem to have shifted partial focus from an evaluation of their performances in absolute terms to a comparison of their guidance versus their actual performance. Now, even a novice analyst knows that the Infy guidance is almost always underplayed, but yet, the markets pick the ball from that point and this has benefited the company’s stock price substantially.
Mind you, the case I am making does not by any means suggest that Infosys is an underperformer or laggard. In fact, there can be no mistaking its unique ability to perform even against a high base effect. But just to cite a point, take a closer look at the bottomline growth after breaking down its components . It could be an eye-opener.
To cut a long story short, I have my doubts whether Infy continues to deserve the tag of ‘THE’ market outperformer and whether small investors really need to devote as much time as the media (particularly electronic) does when its quarterly results are announced. Somehow, I have always believed that very media-savvy managements suggest better ‘packaging’ than performance.
So, does the ‘Emperor have clothes’ ? Perhaps, it still does, but the yarn and cut are beginning to display signs of wear and tear.
THIS ARTICLE APPEARED IN THE HINDUSTAN TIMES IN JAN'07.
For the record, during the calendar year 2006, Infy, notwithstanding a liberal bonus issue and hefty dividend payout that not only depleted its reserves but also distracted some attention from its average financial performance during the year, is return-wise, more or less on par with the BSE Sensex .
Yes, the Infosys result has become a major media event, second only to the announcement of the Union Budget, but the question that comes to my mind is – having scaled the peak, has Infosys begun its downward journey ?
For those to whom this question borders on the blasphemous, I must remind them that I had made similar sounding blasphemous statements about Hindustan Lever (Infy’s equivalent in market demi-God status then) in the late 90’s.
The rationale there was simple and I will cite merely two common-sensical points to buttress my case. The famed FMCG company’s products were no longer given display priority in shops and bazaars plus the fact that the products on the shelf had started getting closer to their expiry dates, than their date of manufacture.
That the numbers which followed, gradually deteriorated and resultantly, the market turned its back on its once favourite was testimony to what we had noticed early. As I never tire of commenting at my training programmes and management school lectures, numbers are more useful for post-mortems than diagnosis for those professing to be equity researchers .
In case of Infy, perhaps purely by accident, they seem to have shifted partial focus from an evaluation of their performances in absolute terms to a comparison of their guidance versus their actual performance. Now, even a novice analyst knows that the Infy guidance is almost always underplayed, but yet, the markets pick the ball from that point and this has benefited the company’s stock price substantially.
Mind you, the case I am making does not by any means suggest that Infosys is an underperformer or laggard. In fact, there can be no mistaking its unique ability to perform even against a high base effect. But just to cite a point, take a closer look at the bottomline growth after breaking down its components . It could be an eye-opener.
To cut a long story short, I have my doubts whether Infy continues to deserve the tag of ‘THE’ market outperformer and whether small investors really need to devote as much time as the media (particularly electronic) does when its quarterly results are announced. Somehow, I have always believed that very media-savvy managements suggest better ‘packaging’ than performance.
So, does the ‘Emperor have clothes’ ? Perhaps, it still does, but the yarn and cut are beginning to display signs of wear and tear.
THIS ARTICLE APPEARED IN THE HINDUSTAN TIMES IN JAN'07.
