Investors in the US lose confidence.
By R. Chandrasekaran
Technology bellwether and one of the India’s biggest software exporter Infosys witnessed the worst confidence among investors in the U.S. after its downbeat forecast for the next fiscal year. Though the beating was expected after the Indian stock markets handed over a similar treatment earlier, there were more reasons for such a reaction from investors and not just restricted to tepid outlook.
The stock had lost nearly all the gains that it could achieve before the quarterly results announcement. While shares of Infosys plummeted 20.68 percent on Friday alone in the U.S. stock exchange due to its outlook, the stock had advanced 27.45 percent at the end of March quarter. However, at the end of Friday’s trading, shares of one of India’s blue chip companies could still manage with a slender gain of 1.89 percent for the year 2013.
Aside from the outlook blues, the management’s comments with analysts and investors failed to convince them in the stock and rather dented the confidence. Till the results announcement, investors seemed to have had confidence on the management’s strategy of revamping itself. However, it appears that their comments failed to have any takers at least for the near term.
One of the possible reasons is the execution issue. While the volume grew 8.8 percent, revenues were 5.8 percent higher. The revenue guidance fell apart probably due to the constraints it is facing on the visa issue, which is why it is seeing below the trade body NASSCOM’s revenue growth for the next fiscal year. The company will also be forced to let some of its onsite work as sub-contract locally. This was evident from the last few quarters that witnessed close to two percent of sub-contract. This results in restricting itself in ramping up its project in time or executing them.
Infosys will also be facing one of the toughest challenges in retaining its talent. This could be seen from the way its CEO said that it will launch a fresh compensation package globally with the focus tilting towards higher component for fixed salary. The company is reportedly paying around 20 percent variables to its junior and middle-level professionals. While offshore staff was given a hike of 6 – 8 percent last time, onsite professionals pay were revised up on average by two percent.
The company faced attrition level of 16.3 percent and 15.1 percent in the last two quarters indicating concern over the pay package growth. The technology company also preferred to go slow on campus hiring this year and will not mind in hiring as and when needed.
These comments were of clear indication that the road ahead in the near term could be a rough one and certainly not a smooth one as was witnessed till a couple of years ago.
To contact the author, e-mail: rchandrasekaran@americanbazaaronline.com