Apr 14, 2007|
Bangalore boost for bulls
Bulls started as well as the ended the week with a flourish and this is what eventually led to the indices closing the week on a high. For the week ended April 13, 2007, both the BSE-Sensex as well as the NSE-Nifty recorded gains in excess of 4%.
These days, the fate of the markets is often being decided in just one or two trading days where huge swings take place while on the other days, the markets just remain lackluster. It was no exception this week as thanks mainly to the huge upward swings on the first and last trading days, benchmark indices ended comfortably in the positive. While on the other three days, markets remained lackluster. While some bargain buying drove gains on the first day, strong results from Infosys pushed the entire markets and the tech stocks in particular in the higher orbit on the last trading day of the week.
As far as institutional activity is concerned, between 9th and 12th April, while mutual funds sold equities worth Rs 1.6 bn, FIIs indulged in some strong buying to the tune of Rs 11.3 bn.
||As on April 6
||As on April 13
|BSE OIL AND GAS
On the sectoral indices front, all of them ended the week on a high with 'Metal' and quite expectedly the 'IT' indices emerging as the major gainers. With prices of metals like aluminium and copper inching up, non-ferrous metal stocks enjoyed an excellent run during the week. Steel stocks also edged higher, thus resulting into a strong 8% gains for the overall index. IT index also edged higher by 5%, with most of the gains coming on the last day, post announcement of strong results by the sector bellwether Infosys.
Software major Infosys announced good set of numbers for its fourth quarter and full year ended March 2007. Infosys has announced strong results for the quarter and full year ended March 2007. For FY07, the company has recorded a 46% YoY and 57% YoY growth in revenues and net profits respectively. However, led by higher sales and administrative expenses, the operating margins have shrunk by 90 basis points (0.9%) for the fiscal. The results are very much in line with our estimates with actual revenues lower by a mere 2% and net profits higher by 3% as compared to our estimates. The board has recommended a final dividend of Rs 6.5 per share (dividend yield of 0.3%). In a major change at the top management level, Kris Gopalkrishnan (currently COO, President and joint-MD) has been appointed as the CEO and MD of Infosys. Nandan Nilekani, the current CEO and MD will take over as Co-Chairman of the company.
The management has guided for a 23% to 25% YoY growth in revenues and 20% to 22% YoY growth in earnings for FY08, which we believe is conservative considering the strong traction that the company is witnessing in the offshoring of IT services from global corporations. The management has indicated that the earnings growth guidance for the current fiscal has been lower on account of equity dilution due to ESOP allotment (there has been a 3% equity dilution due to ESOP allotment). The management also does not foresee any imminent slowdown in global IT spending, as has been feared by many 'experts'. In fact, the pressure to cut costs is forcing more and more international companies to offshore their IT processes to Indian offshore service providers like Infosys.
Top gainers during the week (BSE A)
The week also saw the listing of ICRA, India's second largest credit rating agency. Its shares debuted on the bourses with a premium of 92% to their upper limit of the issue price. The company is the second largest credit rating agency in India after CRISIL with a 32% share in the country's debt rating services. While rating continues to be the primary business of the company, it also provides a host of other services vide its subsidiaries. The expected growth in the size of the corporate debt market in India from their rather minuscule levels at present, the diversified business model of the company and the rating and consultancy business it expects to garner from SBI post the issue made a strong case for applying to the same. The stock closed the day over 140% higher than its offer price.
Jet Airways has entered into an agreement to acquire Air Sahara. Under the new agreement, Jet would be paying Air Sahara Rs 14 bn for the acquisition. This excludes the Rs 1.8 bn that Jet spent for running Air Sahara for three months, the Rs 5 bn paid against shares pledged by Air Sahara and a creditor's deduction of around Rs 2.7 bn. So, given that Jet has already expended this Rs 9.5 bn (and lost potential interest earnings on the amount, apart from the opportunity cost), the present valuation of Air Sahara works to around Rs 23 bn, which is more or less what Jet had bid for in the first place (US$ 500 m in January 2006). The deal is not a positive for Jet as it is expensive and will affect the margins of the company given the fact that Sahara has lower margins. Investors too have not reacted to the announcement favourably as the stock ended marginally lower for the week.
Top losers during the week (BSE A)
April 6 (Rs)
April 13 (Rs)
||495 / 243
||312 / 107
||323 / 210
||432 / 145
It remains to be seen what Infosys has started gets emulated by other heavyweights. And since the result season is now upon us, it won't take too long for the news to finally unfold. Since expectations are sky high, any positive surprise is likely to get treated rather moderately while negative surprises might take a big toll on market values of the concerned companies. As far as we are concerned, we will try our best not to be a part of this psychological storm if at all it brews in the markets and be realistic in our assumptions. Please bear in mind that it is important not to dance on the tables when markets touch lofty levels and not jump into the sea when they go downhill. And the only way you can achieve this is by investing in what you know and being realistic in your returns expectations.
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