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Not just software this season

Jul 10, 2003

We are once again in the quarterly earnings season and as usual, all eyes were set on the result to be declared today. The big software daddy, Infosys, announced its 1QFY04 results today. The company posted a sequential rise of 6% in topline and 7% bottomline growth. Just to flash back one quarter, Infosys had given a guidance of Rs 161-163 for FY04. This translates into a growth of between 11-12%. Also, the topline was projected to grow in the range of 22%-24%, indicating that though the company expects volume growth to continue, pressure on margins is likely to stay. Apart from the performance of the company, markets kept a close watch on the guidance given by the tech bellwether. The company has revised its guidance upwards to Rs 168, implying a bottomline growth of 16% for FY04. The company's guidance last time had led to the re-rating of the entire software sector. However, this time around, the situation seemed relatively better, in the sense that investor expectations had already been toned down to realistic levels and the markets were not expecting a major surprise on the results front. So, when Infosys declared its 1QFY04 results, which not only beat its own guidance but also market expectations, there was a flurry of buying activity seen in the software sector.

COMPANY April 11 (Rs) July 9 (Rs) % CHANGE
BSE-SENSEX 2,998 3,621 20.8%
INFOSYS 2,618 3,256 24.4%
WIPRO 929 916 -1.4%
SATYAM 145 188 29.5%
HCL TECH 147 155 5.7%

On a more macro view, while IT spending in the US and other major markets have shown no signs of revival, more and more of the current quantum of spending is coming to India (outsourcing). This is likely to benefit biggies like Infosys and Satyam. However, in order to get a larger pie of contracts, Indian software companies may have to compromise on margins. While markets seem to have factored in this information, Infosysí better than expected results have further improved the outlook towards the software sector.

COMPANY March 31 (Rs) July 9 (Rs) % CHANGE
TISCO 134 172 28.7%
SAIL 9 18 104.5%
HINDALCO 535 764 42.9%
TELCO 156 209 34.4%
BAJAJ AUTO 480 569 18.7%
GUJARAT AMBUJA 160 197 23.4%
ACC 139 167 20.5%

However, the earnings season is not just about the software sector. Sectors like steel and aluminium have continued to be in the limelight in FY04 also. Hence, one can expect surprises in the results of companies like Tisco, SAIL, Hindalco and Nalco. The auto sector also has shown a decent growth in volume sales in 1QFY04, which is likely to be reflected in higher topline and probably, improved bottomline. For the cement sector, improving realisations and buoyant volumes are likely to keep the interest alive in this counter.

However, in the short-term, investors seem to have already factored in India Inc.'s June quarter performance. Hence, even if the results declared are good, the upside strength of the indices will be put to test. Notwithstanding the short term concerns there are still a lot of investment propositions in the stock markets that offer value in the long term.

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