Indian Markets Continue Their Rally

Tue, 19 Jan 11:30 am

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After opening the day on a positive note, the Indian Markets have added to their early gains. Sectoral indices are trading on a positive note with stocks from the banking, financial and industrial sectors leading the gains.

The BSE Sensex is trading up 176 points (up 0.7%) and the NSE Nifty is trading up 52 points (up 0.7%). The BSE Mid Cap index is trading up by 0.5% while the BSE Small Cap index is trading up 0.7%. The rupee is trading at 67.56 to the US$.

Telecom stocks are trading on a positive note with Himachal Futuristic and Tata Teleservices witnessing maximum buying interest. Cellular Operators Association of India (COAI), the GSM industry body, has asked the government not to levy Swachh Bharat Cess (SBC) on telecommunication services. The body has mentioned that there are multiple other levies applicable on the industry and the levy of SBC will further burden the telecom operators.

In its budget recommendations, COAI said with the levy of SBC, the effective rate of service tax has further increased to 14.5% and this would increase the overall cost of telecommunications services for customers. One shall remember the government had imposed SBC at a rate of 0.5% on provision of all taxable services w.e.f. November 15. Along with this, it was also clarified that the credit of SBC cannot be availed and the cess cannot be paid by utilising credit of any other duty or tax.

Further, regarding direct taxes, COAI said there is some uncertainty on the withholding tax obligation, if any, under section 194J of the Income Tax Act, 1961 on payments made in consideration for spectrum acquired through trading. The body for this has asked to clarify that that payments made in connection with the trading/sharing of spectrum are not in the nature of royalty and hence do not attract withholding tax obligations. Lastly, it also asked the government to issue a clarification that spectrum fees is an intangible asset eligible for depreciation under section 32 of the Act (subscription required).

Stocks in the software space are trading mixed with Zylog Systems and Megasoft leading the losses. As per an economic daily, IT firm Mindtree has said that it will acquire Salesforce consulting partner Magnet 360 in an all cash deal of US$ 50 million. The deal is expected to close in the next two months and will see about 150 people joining Mindtree. The consideration includes an upfront payment of US$ 37 million and earn out and additional payout of up to US$ 13 million over the next two years.

With this acquisition, the company is looking to up its play in the fast growing cloud computing services area. The company has Honeywell, Nike, Cargill among its clients. The management of Mindtree said that this acquisition positions us for leadership in the fast-growing cloud-based services markets.

One shall note that, Mindtree has been aggressively acquiring companies to expand its services. Last year, the company has made three purchases namely Discoverture Solutions for over Rs 920 million, UK-based Bluefin Solutions for about Rs 4,196 million and Relational Solutions for about Rs 635 million. Previously, it has acquired firms like 7Strata, Kyocera Wireless and Aztecsoft.

Mindtree is a global information technology consulting firm specializing in corporate IT services and solutions. The company delivered a superb performance in 2QFY16. Total sales came in at US$ 180.3 million. This was largely driven by digital services, which grew 23% QoQ and 35.4% YoY (9.6% QoQ & 20.6% YoY excluding the recent acquisitions). Digital contributed to 35% of 2QFY16 sales and currently stands at 36.6% of the total consolidated sales of the company. If you are interested in the stock, here is our detailed result analysis report of the company (subscription required).

Presently the stock of Mindtree is trading down by nearly 1.8%.

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