| Hey! You got a Warning in Your Mail |
No, no this is not a sequel to the Hollywood potboiler, You have got a mail. Rather it is the latest offering from the Wall Street’s crazy punters & Co. to hit the great Indian equity bazaar. The market back home is abuzz with the talks of this new finding. And before you guys get crazy let me introduce it. The US market operators call it “profit warning”, by love. Now it’s up to you whether you retain the name or would love to give it a desi name. The choice is entirely yours. However, one thing is for sure – it has arrived and is here to stay.
For the uninitiated who would be keen to
know more about it, it’s almost customary for the companies in the US markets to give
profit warnings well in advance. To simply put, If a company believes that it would not be
able to meet its revenue and profit targets for a given quarter, it issues a warning
message to the market stating the same. Needless to say this is followed by a selling bout
in the stock. The stock gets the battering and hammering and all those treatments the
market punters think appropriate for it. But this does not remain restricted to the stock
only, more often than not the listless market marauders punish a whole bunch of stocks
from that sector, and if not contented with that, the entire market gets punished.
Remember the upheavals US markets especially Nasdaq have met with in the recent times?
So, are you ready for the show? Presenting the desi version - welcome to the
Mast(ek) show.
A few days ago Mastek issued a profit warning saying that the company is not likely to
meet its projected revenue and profit figures for the coming quarter; probably the first
ever by any Indian company. The outcome – market punters got down to some serious
discussions as if there was no tomorrow. The company was quick to respond to the market
apprehensions by giving clarifications regarding what led it to bring down the projected
figures. The company said that the Group Revenues of Mastek were expected to be 5
percent to 7 percent lower than the previous quarter, for the second quarter ending 31st
December 2000. This was largely because of delays in closing large accounts with
significant offshore potential, as per the new strategic directions pursued since the
beginning of this year. A statement issued by the company further said that apart from the
drop in revenues, the group profitability would be further impacted by provisions made
against dues from a dot com customer who was yet to receive an additional round of funding
and a charge for stock options granted to subsidiary employees in the UK (as per new
rulings of the Accounting Standards Board), leading to a drop of 60 percent to 70 percent
in net profits, in comparison to the previous quarter. Earlier, when the profit warning
news hit the market every satellite channel worth its name got down to engage in some
interesting discussion over the issue. In the end, after a lot of hulla baloo, what
emerged out of the whole exercise was the fact that it’s a short-term phenomenon and
could be overcome in the long-term.
Well, there is nothing wrong in bringing facts to light but the point is – is it
correct that the entire market should be subject to an individual company’s
performance? What is happening in the US markets is not and cannot be a healthy thing.
Given the strong fan following for Nasdaq here, Hrithik Roshan may feel jealous of it, it
would be difficult for the local market not to emulate the big brother. However, a
rational investor should not be swayed over by such short-term hiccups and take his or her
investment decision keeping in mind his/her long-term investment objective only. Hope this
new year resolution goes down well with all those who believe in equity investing as a way
to steady prosperity and not to making quick bucks. Hope next time you get a profit
warning from a company you are not scared to open your mail. Happy investing.
Amit Singh
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