The stock market reaction to TCS' mega-bonus reveals the short-term thinking of investors
22-Apr-2015 •Dhirendra Kumar
Over the week past, Indian stock markets have given a textbook example of knee-jerk short-termism overpowering everything else. When I first heard the news that TCS has decided to give a massive bonus to its employees, I felt that this was a great move by the management. Earlier in the year, the company's public image had taken a battering when a sting video of an exit interview had leaked. This was followed by rumours of large scale sackings, which led to intense criticism of the company on social media. Now, with this bonus, TCS is making it clear that it values its employees, and is willing to back this up with not just PR-type statements but hard cash.
However, while I was happy with the TCS news, I was unpleasantly surprised at the reaction of equities analysts, traders and most of the business media. Practically every one of them thought that giving the bonus was negative news. Why? Because it seems that in their way of thinking, employees are a cost and the less you spend on employees, the better it is. These investors would be happiest if all employees could be sacked and revenue could just be generated by magic. This attitude makes sense only if your focus is solely the profit that is made over the next quarter and the stock price next morning.
Since January 2005, TCS has generated 23.3 per cent annual returns for investors, multiplying their money by X times. However, every now then, generally as a reaction to a results declaration, the stock price plunges. It should be clear to everyone that the amount that TCS has spent on bonus should be seen not as cost, but as an investment into the future. Unfortunately, the markets' focus is solely on the immediate future. There are few investors who care what happens to a company, all they are bothered about is what happens to a stock the next morning.