The news from Infosys is not bad, but it is not good enough. The company is doing a sterling job of managing margins in an extremely hostile currency environment, but it still is not good enough to generate outperformance for its investors.
The bottom line is that in its seasonally best quarter, Infy managed to report a weak 2 per cent sequential rupee earnings per share growth. It still has not been able to get back to the rupee EPS guidance it held out at the start of the year, of between Rs 80 and Rs 82 per share. Swimming against a tide is always difficult.
Make no mistake, the management has done a fabulous job of holding margins at 30 per cent even as the rupee rose from 45 to a dollar to 39. But it is running to stand still. Unfortunately, the market rewards stocks only on what they finally deliver, not on how hard they try. Despite its underperformance for the last nine months, valuations still do not support the Infy stock. If it delivers Rs 81 in earnings it is still trading at a price-earnings ratio of 25; that for a company that is guiding 15-16 per cent earnings growth this year. Not cheap.
These numbers may not have been received as badly if the stock was languishing at Rs 1,750. The 20 per cent rally to Rs 2,100, in expectation of a surprise, is what makes outperformance doubly difficult. The stock may not fall much, but rising much above Wednesday's closing of Rs 2,125 seems a challenge. It seems easier to justify a range between Rs 1,800 and Rs 2,100. That is not exciting enough. So, sorry guys, after nine months of underperformance, the wait is not over.
Yes, an institutional investor cannot afford to ignore information technology services altogether as it still accounts for a significant portion of the Sensex, but as an individual investor, you care only about absolute returns. That may lie elsewhere. Infotech will probably be a range rover for some more time. Infy remains a superb company but not a great stock.
(The writer is Executive Editor, CNBC-TV 18)