Market watch: Can Infy turn the tide?

Infosys needs to come out and say it can swim against the currency tide and still deliver, on the strength of its core business, reports Udayan Mukherjee.
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Updated on Jul 11, 2007 02:33 AM IST
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Hindustan Times | ByUdayan Mukherjee, New Delhi

The "underperformer" tag is something that will not sit easy on the shoulders of the Infosys management. Such is the power of the currency though that the market is willing to overlook its impeccable record of revenue and profit growth as it weighs the merits of a fundamental de-rating of the information technology sector.

Wednesday is the day of reckoning. Infosys needs to come out and say it can swim against the currency tide and still deliver, on the strength of its core business. If it cannot, then the stock and the sector may unfortunately have to live with the underperformer tag for some more time.

Everyone knows Infosys is a conservative company. When it gives guidance, it generally factors in quite a bit of buffer for things that could go wrong. Whether those buffers are deep enough to negate a 10 per cent currency swing is the big question.

The street is primed for bad news, the stock has been a big underperformer; all Infosys needs to say on Wednesday is that it can still deliver its annual guidance of around Rs 80-81 a share. This is not impossible.

Remember, Infosys usually beats its annual guidance by a very wide margin--a margin, going by historical evidence, big enough to cover up for the rupee-inflicted pain. Yet, the company has a pathological fear of falling short of its guidance and this very conservatism may push it to keep a bigger buffer in case the rupee continues to appreciate.

If there is a substantial downward revision in its earnings per share guidance--anything south of Rs 77--the market may get spooked. Having rallied about 6 per cent in the last few days, the stock may sell off again, taking with it the overall sector.

Anything between Rs 77 and Rs 80 may be along expected lines and thus in the price. If the current guidance is upheld, the stock and the sector may rally. Indeed that may spark off a process of catching up for this beaten down sector and also be the catalyst for the next leg of rally for the market at large. The old adage "when the going gets tough, the tough get going", will be tested on Wednesday.

(The writer is Executive Editor, CNBC-TV 18)

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