Avoid trap of market expectation: Ramadorai
He said when markets are booming along with revenue growth, setting and meeting expectations was not so tough.
By PTI |
BANGALORE: Indian companies must avoid the 'classic trap' of market expectations and the consequences of earnings guidance are often 'not very healthy', S Ramadorai, chief executive of the country's largest software exporter Tata Consultancy Services, said on Monday.
"Companies often give guidance and the market accepts the guidance, because it makes for more transparency in earnings and allegedly helps investors decide to whether or not or how long to invest for," he said at a CII seminar on 'Governance and Accountability here.
"The thought is fair as are the intentions of transparency in business operations, but the consequences are not often very healthy," he said.
He said when markets are booming along with revenue growth, setting and meeting expectations was not so tough.
But, he said, conditions could change and companies could often find themselves trying to meet expectations and manage earnings, rather than being focused on the long-term health of their business. Companies could be very often tempted to discard good governance to avoid a large scale erosion in their market value, a la Enron Corp of the US, he said.
After much deliberation TCS had decided not to give earning guidance to analysts, he said.
Ramadorai said though there was a huge demand to follow what was considered 'best practice', as "a leader leading the change, we decided not to follow the herd".
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