In an earlier article, we had mentioned that the CFO resigning is a good sign that bearish times are ahead for the company.
Now the CFO of Suzlon Energy Robin Banerjee has quit on 30th March, 2012. Since then, the stock has lost around 3.7%. In a recent article in ET, analysts have explained their apprehensions of the company defaulting on its FCCB debts-( $360 million in June 2012 and $209 million in October 2012).
Today the company announced that it was divesting its windfarm assets to the tune of 40 Million $. Despite this favorable news, the stock tanked by 1.76%.
When even favorable news can’t lift a battered stock price, it shows that the underlying technicals of the stock are quite weak indeed.
Arrival of Robins normally indicate signs of spring.Departure of this Robin probably indicates winter for the stock!
In the Stock Market Wizards, Dana Galante mentions that high management turnover is a good red flag that things are not hunky dory in the company.
This certainly holds true in the Indian context as well.
Consider for instance the aviation sector in India.Numerous CEOs have come and gone in Jet Airways,Kingfisher Airlines and Air India.This should have served as a good warning sign to investors to stay clear of the sector.
The resignation of the CFO/Compliance officer often indicates bearish times ahead for the stock.This is true for midcap and smallcap companies and not so much for A Group companies.
These officials are usually professionals (non promoters) and have no qualms in deserting a sinking ship !
Consider the following three examples:
CFO of MPS Ltd resigned on 15th Feb,2012.Since then, the stock is down 16%
CFO of Electrotherm resigned on 4th Feb, 2011.Since then, the stock is down 70%
Company Secretary of Clutch Auto resigned on 15th Nov, 2010.Since then, the stock is down 60%
No doubt market conditions had a role to play in the decline of the market caps of these companies.But the fact is these companies fell harder than the rest of the market as they were weaker fundamentally.
This is illustrated by the following example:
CFO of AshapurMin resigned on Dec 1, 2011.Despite Jan 2012 & Feb 2012 being very bullish months, this stock hit a 52 week low on 26 March, 2012-a fall of around 18%