The Hindu Business Line : `Cos must not be led by market expectations'

Suggesting that Indian companies should avoid the `classic trap' of market expectations, the CEO of Tata Consultancy Services, Mr S. Ramadorai, said on Monday that the consequences of earnings guidance were often "not very healthy".

Speaking at a CII seminar on "Governance and Accountability", Mr Ramadorai said: "Companies often give guidance and the market accepts the guidance, because it makes for more transparency in earnings and allegedly helps investors decide to whether or not or how long to invest."

"The thought is fair as are the intentions of transparency in business operations, but the consequences are not often very healthy," he added. Further, when markets are booming along with revenue growth, setting and meeting expectations is not so tough. But conditions could change and companies could often find themselves trying to meet expectations and manage earnings, rather than being focused on the long-term health of their business.

Companies could be often tempted to discard good governance to avoid large-scale erosion in their market value, a la Enron Corp of the US, he said.

After much deliberations TCS had decided not to give earnings guidance to analysts, he said.

Mr Ramadorai said though there was a huge demand to follow what was considered `best practice', as "a leader leading the change, we decided not to follow the herd". "Good governance has meant that Indian IT industry has been able to earn the kudos of customers globally despite increased fears of data theft and privacy concerns," he said.

In other sectors such as electricity and real estate, governance has not been up to the mark.

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