Infy missile knocks 106 points off Sensex

It is said that whenever Nasdaq sneezes, stock exchanges around the world catch a cold. In India, the Nasdaq phenomenon can perhaps be attributed to bellwether stock Infosys, the darling of Indian stock exchanges. On Thursday (April 10, 2003) it was a bloodbath for IT stocks after Infosys Technologies unveiled a sharply lower future guidance, sending the Sensex tumbling by 106 points.

Following the announcement of its fourth quarter earning numbers, the Infy stock nosedived 26.80 percent, which, in turn shaved 3.37 percent off the 30-share Sensex. Infosys Technologies clocked a PAT of Rs 957.93 crore for the fiscal ended March 31, 2003, showing a growth of 18.56 percent compared to Rs 807.96 crore in FY02. The topline grew by 39.14 percent to touch Rs 3,622.69 crore in FY03 as against Rs 2,603.59 crore in FY02.

Apprehensions about the company’s prospects after the forecast of lower earnings numbers ahead saw across-the-board selling in software stocks, with frontline stocks plunging up to 50 percent, one of the sharpest falls ever. On the BSE, Infosys dipped by Rs 1,113.45 to close at Rs 3,044.60, on a volume of 15.24 lakh shares. This in turn triggered the downward journey of its IT peers. On a single day, BSE’s (The Stock Exchange, Mumbai) market cap slid by over Rs 18,000 crore to Rs 5,31,000 crore.

The worst-hit was Mastek, which lost half its value. This is the worst-ever fall recorded on the domestic bourses till date. Mastek shed a huge 49.1 percent in a single session to settle at Rs 284.70 on the BSE, compared to its Wednesday’s close of Rs 560.20. Huge volumes of 54.3 lakh shares were recorded on the counter. Other IT stocks which followed Infosys were Wipro (down 19 percent to Rs 1,010), Digital GlobalSoft (down 16 percent to Rs 496), Ramco Systems (down 16 percent to Rs 394), Satyam Computer (down 16 percent to Rs 150), KPIT Infosystems (down 15 percent to Rs 135), Hexaware Technologies (down 13 percent to Rs 98.70) and HCL Technologies (down 14 percent to Rs 143.50).

Dealers are perturbed by the heavy slide in the tech stocks, although the market expected some amount of decline due to the Infosys disappointment.

Dealers said for Infosys, in particular, short-selling and slashing of positions in the derivatives markets added to the precipitation.
Dealers further observed that Infosys has been hit by its wide holding, as every fund and high net worth individual has Infosys in their portfolios.

As if it were not enough that fourth quarter earnings were on the lower side of expectations, Infosys added to the gloom by giving a muted guidance for the future. Analyst concerns mainly pertain to margin pressure.

UTI MF fund manager Sanjay Dongre said: “Margin pressure and price pressure have weighed heavily on the stock price. Earlier, the software major had talked about establishing pricing pressure, but the current 5 percent price fall has caused panic among market players. People are now sceptical about the premium that Infosys commands as compared to other frontline software stocks, given the 10-12 percent future growth projection made by the company.”

Infosys said prices for its services had fallen more than 5 percent from the preceding quarter, while volumes grew about 13 percent. Analysts said Infosys continues to see pricing pressure. The 7.7 percent sequential growth in US dollar revenue of Infosys comprised volume growth of 12.8 percent, which was offset by a price decline of 5.1 percent. The impact was so severe that Infosys alone showed a wealth erosion of Rs 7,374 crore on Thursday. In 43 technology stocks, investors faced a wealth erosion of over Rs 15,800 crore in a single day.

Said R K Gupta, chief executive officer (CEO), Taurus Mutual Fund, “The yearly performance and future guidance of Infosys seems to be reasonable. I feel the current market reaction is knee-jerk and a further sharp fall from 3,000-level appears difficult. The company has projected a 20-22 percent growth in topline and over 15 percent increase in bottomline.” Second-rung IT stocks should see further erosion in value, but the frontline IT stocks should make a rebound, Gupta added. As expected, Infosys continues to remain the navigator for a market that has always been looking for directions in a sluggish economy.

— The Financial Express