| Why Good Results led to Bad Bourses? |
It was a bright Wednesday morning of April, 2001. Infosys was due to come out with its results. Expectations ran high as everybody awaited the results with bated breath.The markets during the past few days had witnessed a blood bath & everybody was looking, if I may say so, for the light at the end of the tunnel. The big question looming large, of course, was whether the light would turn out to be a turnaround in the market or the glistening eyes and shining claws of an even larger bear.
Every analyst worth his salt had predicted the results to be good. Infact the results had turned out to be in line with expectations. But one thing that nobody expected was the impact that the results could have on the bourses.
Infosys came out with its results before trading hours on the 11th of April. The results sent the markets into a dizzy tailspin. The badly bruised bourses after losing 133 points sunk to a 23 month low. Why did this happen?
Analysts have always resorted to historic precedents to predict the trend on the Bourses.This has never led to huge profits. However, since history repeats itself, approximately may be, digging around the edges of a recent trend can sometimes produce significant and maybe profitable conclusions. It has been a regular feature in the past that Infosys stock prices have witnessed a fall, soon after the results were announced. But was this the only reason for the fall in the share price of Infosys?
Did I hear somebody say that volatility has long been the characteristic of the Bourses. Granted, we live in volatile times, but what is the reason behind this volatility? I would attribute it to the uncertainty surrounding the future of the new economy stocks. Over the past few days we have seen many corporate like CISCO & Nortel issue profit warnings. Infact Nortel, was open enough to acknowledge that the future looked so cloudy that they couldn't provide any forecasts for analysts.
So, what went amiss. In my opinion many a factor contributed to the bad performance in the bourses. The past few days had seen many a software companies in the U.S like CISCO & NORTEL (both top clients of Infosys) issue profit warnings. There have been reports of U.S Slowdown. This slowdown seems to have percolated to Europe also. There have been reports on reduced IT spending in the U.S. To top it all the Telecom sector which is the major source of revenue for tech companies is facing a slowdown. Infosys has about 70% of its revenue coming from U.S clients & any signs of slowdown in the U.S is bound to affect the company. However, Man, by his very nature, has always been hoping against hope. He has always clinged on to the last ray of hope wishing that this would lead him out of the darkness. Everybody hoped that the slowdown in U.S would not affect the Indian IT companies. Infosys results were as such upto expectations. However the company also issued a profit warning for the coming Fiscal. The company's projected 30% growth is way below the three digit growth it has chalked up in the beginning of the year. This sent the markets into a panic zone and heightened speculation that many more software companies would follow suit. Foreign Institutional Investors which had showed some sort of optimism turned negative. All the Tech counters witnessed a bloodbath. What more could you expect, especially when you have pampered your investors in the past with three digit growth.
Sai Adwaith
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