Which of the four major it services companies, Wipro, Infosys Technolo-gies, Tata Consultancy Services (TCS) and Satyam Compter Services, guides the market best? And which one shields its stock from volatility in a market looking for an excuse to punt up (or down) a stock? The way share prices have historically moved over the two days following the announcement of financial results could provide answers to both questions. That data indicates that: the shares of Infosys and Wipro tend to move in opposite directions; the TCS scrip, despite its short-stint in the market is relatively stable; and Satyam continues to startle the market despite its detailed guidance. There is more to these stock movements though, than meets the eye.

Infosys' results usually increase volatility in the stock, implying that the markets are often surprised. Of the last eight quarters, six have witnessed this phenomenon. This, despite Infosys' habit of issuing a detailed guidance which would suggest that the markets should know what to expect.

One reason for this could be the fact that Infosys is always the first it company to announce its results, setting the tone for the entire sector. Another could be that the market speculates not just on Infosys' actual results, but on the guidance itself.

For instance, Infosys disappointed markets by reporting lower-than-estimated growth in net profit for the three months ended March 31, 2006, but its stock appreciated by around 10 per cent in two days because of a stronger-than-expected guidance for 2006-07. "Infosys guides not just for itself, but for the sector, and sometimes for the market as a whole," says V.K. Sharma, Director and Research Head, Anagram Stock Broking. Then, over time, Infosys has also acquired a reputation for being conservative with its guidances and then exceeding them. "The market always expects Infosys to exceed expectations, which is why their stock tends to be volatile," adds Sharma.

Wipro usually announces its results after Infosys and TCS. By then, the markets know what is coming. Not surprisingly then, the stock is more stable.

Interestingly, the two-day post-results movement of Wipro is typically in the opposite direction to Infosys for the same quarter. One explanation for this could be that all it stocks move in a certain direction after Infosys' results; then, after Wipro's results, they stabilise by retracing some of the earlier price movement. For example, after Infosys announced its results for the quarter ended March 31, 2006, Wipro's stock appreciated by 10.6 per cent (which lends credence to the argument that Infosys indeed serves as a bellwether for the industry), only to correct itself by declining 2.6 per cent after the declaration of its own results.

TCS appears less volatile than Infosys, with the stock moving sharply in only four out of the seven quarters since its listing. However, when the company gets it wrong, it goes way off: the movement in stock price has been very significant in three quarters (the stock dropped 15.5 per cent after the company declared its results for the quarter ended March 31, 2005). TCS does not issue a guidance on expected performance and this could be reason for lesser speculation and consequently lower volatility in its stock.

The same lack of guidance could also be the reason for sharper movements when results are not in line with market expectations. If the lack of guidance is part of a game plan to manage expectations (by not building any), then this clearly doesn't work all the time.

Satyam announces its results after the markets have refined their expectations and have a good idea of what to expect. However, the company is still able to surprise the markets; the stock has reacted sharply after the announcement of results in seven of the last eight quarters. The movement has been sharp and mixed in terms of direction. Incidentally, Satyam, like Infosys, gives out detailed guidance for the year ahead.

It is unlikely that the market will stop rating and re-rating it firms on the basis of their quarterly results; the sector attracts huge investor interest. However, investor friendly companies need to evolve ways to smoothen what is, right now, a roller coaster ride for it stocks. While the practice of issuing guidances helps conceptually, it seems to have contributed to stock volatility (and this is something that could explain TCS' approach of not issuing any). The solution, though, doesn't lie in a retrograde movement away from guiding the investors, but could be in more frequent guidances.