The June quarter result season took off yesterday with Infosys doing the honours. Analysts who failed to stick to their EPS (earnings per share) numbers for the quarter had to downgrade their estimates for the next 3 months. The stock of Infosys corrected by nearly 4% yesterday. Given the kind of interest a company like Infosys commands amongst the investor community, many readers may have been following this development closely. But believe us or not, this is a season of downgrades.
Analysts and investors who follow earnings performance quarter on quarter may have to come across some more disappointments this season. Sales growth may come in below expectations. Margins may come off their peaks after the higher base seen in FY10. Salary and operational costs may go up. Interest costs are certainly not showing a benign trend. All said, there are bound to be few spoiled mangoes in the basket. And that may send many investors in the rush to follow the set of downgrades for next quarter's earnings.
Meanwhile, the downgrading game is something that is not unique to India. Rating agencies globally are also doing a good job of it. The latest victim of downgrades is Portugal's sovereign rating. Well, the economy is still away from the junk rating that its neighbour Greece has been endowed with. But nevertheless, a downgrade is a downgrade!
Investors globally follow these downgrades very carefully. Be it stocks or economy. And at times, their short sightedness creates brilliant opportunity for others. Cases in point are Infosys and Portugal.
Neither are Infosys' 1QFY11 earnings any indication of its long term potential. Nor is Portugal's sovereign rating any determinant of Indian economy's long term future. But downgraders do centre their activity around such events. And as we said, downgrades are downgrades! And we love them. They create excellent opportunities for long term investors to buy businesses with long visibility at bargains. We hope you too are following them!