The Hindu : Bourses await Infosys results

Online edition of India's National Newspaper
Sunday, Apr 06, 2003

Business

Business

Bourses await Infosys results

By Oommen A. Ninan

MUMBAI APRIL 5. The stock markets witnessed a broad-based uptrend in the last few days on expectation of an early end to the Gulf War II. However, analysts are citing other reasons such as shifting of funds from markets like Hong Kong to Indian bourses. As companies will be announcing their financial results by the coming week, the direction of the market would be decided by the announcement of Infosys results next Thursday.

"The Sensex has managed to go upwards after a minor violation of a previous minor low. The manner in which key index stocks and the side stocks have moved gives us the belief that the market will rally forth into the April 10 time window," said Jamshed Desai, Research Head, TAIB Securities. This is consistent with the technical picture unfolding in the U.S. markets too. "Another short-term supportive factor is that money at the margin in the Far-East portfolios may flow to some of the risk-laden markets such as Hong Kong, Singapore and China into relative safe-haven nations like India, not impacted by the spread of Severe Acute Respiratory Syndrome (SARS). This may hold up the markets above the 3040-3050 range and in fact push it upwards into the 3180-3220 range in the forthcoming week," Mr. Desai added.

Banking stocks have once again perked up. Mr. Desai believes that the March quarter results for IT, automobile, cement and pharmaceutical companies are unlikely to throw up anything to get excited about. This means that among the large sectors, it is only the banking sector, which will steal the limelight by default. Said Mr. Desai, "We suspect a TINA factor (There is no alternative) being played out leading to disproportionate money cashing banking stocks leading to a buying panic emerging sometime in April.

The benchmark Bombay Stock Exchange 30-share sensitive index moved up by 52.26 points to 3167.70 during the week ended April 4 from 3115.44 in the previous week. On the National Stock Exchange, the S&P CNX Nifty gained 16.35 points at 1016.95 against 1000.60. The stock indices rose in the last four straight sessions of the week. Stocks of public sector enterprises and banking sector were in the limelight on buying support from institutions and speculators.

The March quarter earnings' reporting begins with Infosys on April 10 being the star attraction as usual. "We suspect that Infosys," said Mr. Desai, "the true master of managing expectations, will deliver a crafty performance on that day". The stock markets will wait with bated breath to hear the financial results of the IT major. Analysts and investors have pared their financial year 2003-04 EPS forecasts after the December quarter results to be within a range of Rs. 178-212, with the mean number being around Rs. 195. If the past is any guide, then Infosys will guide exactly around this median range of analysts forecasts, even if the company's think-tank is smug about overachieving at this point of time.

A quarter preview (March 2003 results) of information technology companies conducted by HDFC Securities states that the key structural trends visible in the industry, billing pressures, higher investments required to win deals, salary increases and backlash against off-shoring, are likely to take the wind out of the sail for the IT services companies. Add to that the weakening U.S. economy and "we have a potent cocktail for muted financial year 2003-04 guidance by the top companies". It further stated that competition from multinational IT companies is likely to intensify. Most of them have aggressive plans to develop offshore facilities. Though at present they do not have the scale of an Infosys or Wipro, they are likely to catch up in a year or two. In any case, MNC IT service providers have been pricing services on a par with Indian vendors.

"We expect slow ramp-ups and delay in decision making due to the U.S.-Iraq war and growth to be back-end loaded in 2003-04. The keenly watched Infosys guidance for financial year 2004 is likely to be around 23 per cent for top line and around 20 per cent for the bottomline. We are taking a neutral view for the sector due to the cloudy outlook. At the same time some stocks are worth looking at from a valuation point of view," S. Naren, Director, HDFC Securities, added.

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