Which companies eroded the maximum m-cap for shareholders! B&E’s Gyanendra Kashyap investigates...
We have to be downright honest! The top three companies that destroyed shareholder value, were all companies that raked in astounding profits, clearly proving that it is not profits and direct fundamentals that drive Indian stock price movements, but rather a combination of sentiments and future values based on overall strategic orientation of companies.
Coming straight to the point. TCS, Infosys and Wipro have been the greatest value destroyers. Sample the drop in their share prices over a period of one year (1st April 2007 to 31st March 2008); TCS: 31.8%; Infosys: 25.6%; and Wipro: 18% respectively. Consequently, their market capitalisation over the same period of time has declined respectively in absolute terms by $9 billion, $6.4 billion, and $2.8 billion. And if you thought that the m-cap decline must have been because of the Sensex crashing, relax! The Sensex actually, and most hittingly, gained over 25.60% over the corresponding period.
It needs to be understood that the Indian IT behemoths are predominantly export oriented and 50-60% of their revenues are generated from the US and UK. For the last one year, the US economy has been crippled by the subprime crisis, increasing inflation and the dipping employment and growth figures. The appreciating rupee (10% vis-a-vis the dollar) worsened the matters for the companies in the IT, Pharma and Textile sector.
We have to be downright honest! The top three companies that destroyed shareholder value, were all companies that raked in astounding profits, clearly proving that it is not profits and direct fundamentals that drive Indian stock price movements, but rather a combination of sentiments and future values based on overall strategic orientation of companies.
Coming straight to the point. TCS, Infosys and Wipro have been the greatest value destroyers. Sample the drop in their share prices over a period of one year (1st April 2007 to 31st March 2008); TCS: 31.8%; Infosys: 25.6%; and Wipro: 18% respectively. Consequently, their market capitalisation over the same period of time has declined respectively in absolute terms by $9 billion, $6.4 billion, and $2.8 billion. And if you thought that the m-cap decline must have been because of the Sensex crashing, relax! The Sensex actually, and most hittingly, gained over 25.60% over the corresponding period.
It needs to be understood that the Indian IT behemoths are predominantly export oriented and 50-60% of their revenues are generated from the US and UK. For the last one year, the US economy has been crippled by the subprime crisis, increasing inflation and the dipping employment and growth figures. The appreciating rupee (10% vis-a-vis the dollar) worsened the matters for the companies in the IT, Pharma and Textile sector.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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