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I guess those of you who have been closely watching day's proceedings every day on CNBC India, of course about quarterly results of companies, might have heard of terms like billing rates, strategic bench, de-risking of business model etc. And I am sure, some of you might have heard this jargon for the first time. In fact, in happy days of stock market boom nobody cares about how the companies are performing, quality of their businesses, the reason behind astronomical rise in its stock prices etc. Reason being, when the tide comes, they all rise together. But once that is over, the draconian Darwinian Rule comes into picture and then it is survival of the fittest.

In that context, one thing which is very important for you to understand is that, above every thing else it is the quality of business of a company and more importantly its business model which you should scrutinize closely before you make any investment decision. As you may remember, recently on the occasion of the announcement of quarterly results of Infosys, we heard of a new business model of the company i.e. PSDP. The acronym stands for Predictability, Sustainability, De-risking, and Profitability. What does it actually mean? This business model says that the business of the company should be predictable in the sense that there should be a clear idea what is to be done in the next one-two years down the line. Second, this growth should be sustainable. Third, but most importantly de-risking of business i.e. above every thing else elimination or reduction of risk or uncertainty should be given top priority. You have heard of the company saying that though it has reduced its exposure to the dotcom companies from over 9 percent to around 5.8 percent, which means the kind of higher service charges or bills the company was getting from its dotcom clients, may go down, but it will ensure that the risk of loss of payments or defaults on payments from such clients will stand reduced.

Like that, you must have heard that Mastek, another software major, is going for de-risking of its business in order to reduce uncertainty of business. Another company Digital Equipment which announced its quarterly results recently said that, as it gets most of its businesses from its parent, Compaq, it is not going to be affected by the slowdown in the US economy and importantly on the billing rates front. Therefore, you may agree that, understanding the business strategy and the business model of a company is important to save oneself (investor) from sudden shocks like the present one in the form of the slowdown in the US economy and hence slowdown in the IT spending of the US companies from whom the Indian IT companies get most of their businesses.

Amit Singh

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