Oct 13, 2001|
Return of the blue chips
Monday blues, after U.S attacks over the weekend, were jettisoned as investors' bought into equity with corporate India's leading lights positively surprising the markets. Infy beat the street on second quarter earning estimates. Simultaneously, HLL declared plans of returning money to it's shareholders.
Wary of every light in a tunnel being an oncoming train the events were a welcome opening for investor sentiment. That said, not many expected Infy's performance nor could they predict -- at least the timing -- HLL's capital restructuring programme. To that extent, it strengthens the belief in randomness of type of newsflow. Yes, with a slowdown in the economy and war close to home the chances of bad news is likely to overweigh that of good. One cannot say when those silver linings would flash. But one could bet who, more than others, is likely to be the silver lining.
HLL and Infosys, one could hazard to say, are the best managed companies in the country. When the chips are down, all companies are likely to be adversely affected, which is the reason for more negative news flow. But, more often than not, it is the well managed companies that are likely to be less affected, increasing their chances of positively surprising. Even in prolonged periods of challenging business environment such companies adopt alternate strategies for rewarding shareholders; tender-offer buybacks, higher dividend, acquisitions etc. Therefore, looking dispassionately at investing, bet on probabilities.
Infosys announced a top and bottomline YoY growth of 45.7% and 30.9% respectively for 2QFY02. The company not only is going to meet the guidance given at start of the year but is likely to beat it marginally. In April '01, while evaluating growth estimates, it seems, the management provided for some contingency factor. As providence or foresight -- depends on degree of fan following -- would have it, this contingency factor came into play in the very first year. Mr. Murthy is known to believe in under promise, over deliver. Guess, this time around he just managed.
Infosys has grown from a Rs 38 m to a Rs 8,823 m company over the last decade. Employees have increased from less than 1,000 to more than 5,000 over the same period. Along the way, one can be sure, the company faced several growth pangs the complexities of which only increased. But then, that is why managements exist, to ensure smooth business operations. Based on the track record the company seems to have the neccessary systems to successfully overcome business challenges. Going forward, there is reason to believe, they would continue to do so more often than not.
HLL, mid-week, announced plans of capital re-structuring and returning Rs 13.2 bn to it's shareholders over a period of three years. The company is expected to give -- issue date still foggy -- a bonus debenture of face value Rs 6 carrying interest rate of 9% p.a. to every shareholder. This will covert 60% of the company's reserves into debt leading to improved return on shareholders funds. At the same time, the funds are remaining on HLL's books for the next two years, which it can utilise in case an acquisition opportunity springs up. Having said that, the programme will dent bottomline growth due to interest payments. Over the past two years, HLL has faced challenges in achieving growth. Returning excess funds to shareholders helps in maintaining/improving investment ratios and enhancing shareholder wealth, which is then reflected on the stock price.
The markets have rallied smartly over the past week. However, as we get deeper into the earning season the belief is that more companies than not are likely to disappoint. Therefore, an earnings driven rally seems unlikely. Further, although Afghan tensions have reduced, the possibility of escalation hangs in the air. The coming week is likely to be unexciting unless we have some more Infys' or Bin Laden decides to get back.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
Aug 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: email@example.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407