Analysts are already warming up to the results season, as India Inc will start announcing their first quarter results of the current fiscal this week.
When it comes to results, few companies get the kind of attention that Infosys gets.
The company is announcing its first quarter financial performance on July 12.
Market analysts, industry captains, retail investors and fund managers follow it closely due to their vested interests, as it could give some direction not only for the stock but also to the entire market.
But why should the result and the guidance evoke the curiosity of millions of common investors? No doubt, Infosys is a symbol of the country’s IT success story. But is that the only reason?
Or is it due to the growth the company achieved? Established by N.R. Narayana Murthy and six engineers in 1981, the company has grown to a size of $7.398 billion from a capital of $250.
Is its 1.55-lakh staff strength a factor? Or is it due to the wealth creation to its shareholders?
Or due to the perceived corporate governance followed by the company?
Or is it because the man himself – Narayana Murthy, who is an idol to many.
While all these may be the likely reasons, the Q1 financial performance this time around will be monitored even more closely by it followers, as the iconic founder is back at the helm as Executive Chairman from June 1.
It may be recalled NRN, as he is famously known, had quit the company in 2011.
But much has changed since he left the company. Infosys has been under-performing in the information technology industry over the last couple of years.
The company no longer commands bellwether status, as the divergence between Infy’s performance and others has been widening. Companies, particularly TCS and HCL Technologies, were able to buck the Infosys trend.
While the re-entry of Narayana Murthy brings comfort to all stakeholders and raises hopes of a quicker recovery, it also signifies the realisation of the need for a turnaround, and that time is running out, says Espirito Santo, a broking house.
For the current fiscal, the company said it expects dollar revenue to grow between 6 per cent and 10 per cent, just about half the pace of the entire industry estimates.
But Murthy has given himself three years to turn around the fortunes of the company.
So what do broking houses expect from Infosys?
According to Bank of America-Merrill Lynch: Margins this quarter to take a hit from one month impact of onsite salary hike effected February, salary hike for sales from May and increments on promotions. Utilisation could be hit by hiring. Given Indian rupee depreciation we forecast slight decline in margins sequentially”.
A Morgan Stanley report said: “We expect Q1 revenues to be flattish, with wage hikes and productivity hitting q-o-q margins and offsetting rupee depreciation.
We believe any cut in revenue guidance and lower q-o-q margins could limit F14e EPS upgrades despite rupee depreciation.”
However, according to Citi, investors are likely to focus more on the US Immigration Bill – impact/mitigation strategies than earnings (barring big surprises).
“We do not expect any significant moves in the sector till there is clarity on the ‘Outplacement’ clause, which can impact the offshore business model.”