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Its show time folks! - Views on News from Equitymaster
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  • Apr 10, 2001

    Its show time folks!

    The bourses have been languishing due to lack of any stimulus for quite some time now. But this month could give the bourses the much-needed sense of direction. Result time ahoy!

  • Live ADR Quotes

    This has not been an encouraging quarter for the old economy companies, be it, cement, steel, paints, durables and FMCG majors. Hot rolled steel production, for the first time in the current year, reported negative growth in January 2001. Against the average growth of 14%, paint industry is expected to grow at 12% in the fourth quarter. Television sales have dropped by more than 50% in February 2001.

    Unfavorable monsoons and natural calamities in various parts of the country have suppressed spending power of consumers. The scenario is no different for FMCG companies as well. In fact, it was HLL, which felt the pinch of economic slow down in the third quarter of the current year as sales growth stagnated.

    However, auto companies had something to cheer about in the fourth quarter. Though overall industry sales were down compared to the previous year, auto majors like Telco and Maruti reported significant growth in sales in January and March 2001 thanks to the excise duty reduction in the Budget 2002.

    For the so-called 'new economy' companies, average expectations of profit growth is range between 80%-125% for top-rung software companies like Infosys, Satyam, HCL Technologies and Hughes Software. However, what remains to be seen is whether the slow down in the US economy will affect Indian software companies or not. Will these companies be able to win software projects, which has been the case till now? The markets will get a clear indication regarding growth prospects of the software companies during the week from the quarterly-cum-annual results of Satyam, which is slated to announce its results today, followed by Infosys tomorrow.

    The software debacle...
    (Rs m) Market Cap* Market Cap# Change
    Infosys 852,690 261,756 -69.3%
    Wipro 2,223,225 268,076 -87.9%
    NIIT 141,526 24,215 -82.9%
    Hughes Sotware 78,388 20,403 -74.0%
    Digital 50,358 11,739 -76.7%
    Polaris 49,966 8,071 -83.8%
    Global Telesystems 144,316 6,322 -95.6%
    Silverline 38,047 1,939 -94.9%
    CMC 13,196 4,030 -69.5%
    Rolta 59,305 4,332 -92.7%
    VisualSoft 71,137 3,408 -95.2%
    Tata Infotech 25,374 2,171 -91.4%
    BFL 33,686 2,812 -91.7%
    DSQ Software 81,580 2,693 -96.7%
    Aptech 44,874 4,121 -90.8%
    PSI Data 14,554 980 -93.3%
    Mastek 19,734 1,014 -94.9%
    Total 3,941,955 628,083 -84.1%
    *On 52-week high
    #Current market cap.

    Software scrips could witness a re-rating, positively or negatively, depending on how the management of these companies perceive the Indian software sector to grow in the coming quarters. The software companies could be headed for a further downfall if the outlook were not all that promising, atleast on the bourses. But given the NASSCOM projections and the inherent advantage of cheaper labour (lower billing rate) that the Indian software companies have, there is enough upside potential. However, this is time for the wheat to be separated from the chaff.

    Here are few numbers to put things in perspective. The market capitalisation of the top 17 top-rung software companies at their 52-week high was Rs 3,941 bn. The carnage on the NASDAQ and the resultant effect on valuations of Indian software companies have resulted in the combined market capitalisation declining by a whopping 84% to Rs 628 bn! Even assuming a moderate rate of growth, the valuation of these software companies seems to be wanting.

    All in all, an eventful week ahead and let us hope that the Indian software story is not a mirage at the end of the day.



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