Satyam’s CMMI level 5 certification and stock price performance – any co-relation?

Satyam obtained a maturity level 5 on the SEI CMMI ver 1.2 in Jan 2009 and the impact of same has long since been factored into the share price of the scrip. CMMI is a level of certification provide by Software Engineering Institute at Carnegie Mellon.

CMMI is an abbreviation for Capability Maturity Model Integration. CMMI Level 5 Certification is the highest standard in quality software delivery offering the highest possible value to customers by providing better requirement specification, more thoughtful design & architecture, and enhanced quantitative project management.

Like various ISO certifications, SEI CMMI certifications too have become more of a necessity for software companies rather than a choice. There are thousands of companies on this planet with such certification who bid for international projects and hence Satyam’s share price or for that matter or any I.T. companies share price will depend more on pricing and cost controls and ability of company to ramp up revenues by chasing existing and new clients in the domestic and international markets rather than process/ capability certificates . For instance Mastek Ltd too has similar certification but it would be virtually impossible to co-relate this with stock price movement since the price of a scrip is dependent on several simple and complex factors apart from supply/demand, market sentiment etc In fact, Mastek’s share price at today’s close of Rs.160.80 and is down by 61.6 per cent from 52 week high of Rs.417.90 whereas Satyam’s share price which last traded at Rs.58.9 is down by 48.6 per cent and the downslide in all I.T. stocks can be attributed to the bad sentiments prevailing on our bourses. Infosy’s is down by just 11.67 per cent, TCS is down by 5.8 per cent from its 52 week high.

Most of our I.T. companies have various certifications that enhance their image and help them bid for the most lucrative orders in the national and international markets and that helps drive up profits and stock price too provided costs are controlled and leverage is used with abundant caution and overall sentiments are bullish other wise no matter what a company does, its share price can be battered for several reasons just like what’s happening during the last few days.

Notwithstanding the above, Satyam Mahindra is still a good bet even as it continues to face the music which we all have been listening too with melancholy. But, you will dance to the sweet music with joy when the stock price starts moving upwards and upwards as quarterly results start flowing in. Q3FY11 results are likely to be announced in second week of February 2011.

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