Infosys and Satyam Computers are slated to announce their first results on Tuesday. According to analysts, both these companies are likely to post a 100 per cent growth in profits during the second quarter (July-September).

Infosys is expected to post a net profit of Rs 262 crore whereas the net profit of Satyam Computers is likely to be in the region of Rs 110 crore.While these companies have done extremely well in the recent past, and may surpass the market expectations, the key question is, whether the market would react positively to these results?

The answer appears negative. If that was the case, the stock prices would have appreciated in anticipation of good results. In fact, in the last few days both Infosys and Satyam scrips have shown a weak trend.

This indicates that a growth of around 100 per cent in the net profit may not provide a major boost to the stock prices.

In case of exceptionally impressive results, the market will react positively simply because short-sellers will rush in to cover their position besides making fresh purchases.

While this is true, expecting a growth of over 150 per cent in net profit from these companies would not be fair because Infosys and Satyam Computers no longer operate at a lower base. Both these companies have been posting a three digit growth in the last three years and have grown up. It is not only difficult but nearly impossible to repeat the growth on bases at which these companies are operating on. On the contrary, if these companies fail to meet market expectation, the speed of downtrend will be very sharp. The position of other software companies is no different.While negative sentiment is expected to nullify the impact of positive performance by software companies, the performance of the Old Economy sector is expected to be far from impressive. While a major part of the negatives have been discounted, the announcement of poor performance may further trigger the downtrend in old economy stocks.

Another factor which can affect the sentiment is high long positions. Despite a fall in stock prices, long positions have not shown a major fall in the last four weeks and a further sideway movement may force long players to offload their positions as the cost of holding rises. Overall, the sentiment will take some time to improve and till then one should stay away from long positions.

Deepak Singh Tanwar