Sensex Opens Firm; IT Stocks Gain

Wed, 21 Feb 09:30 am

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Asian stocks were relatively subdued in the early trade today, with most regional indices hovering around the flat line following the softer lead stateside. Japan's benchmark Nikkei 225 index was fairly muted, trading higher by 0.06% in the morning. Overnight, the US stocks closed with losses as decline in Walmart weighed on the benchmark indices.

Back home, India share markets opened the day on a firm note. The BSE Sensex is trading higher by 112 points while the NSE Nifty is trading higher by 52 points. The BSE Mid Cap index and BSE Small Cap index both opened the day up by 0.4%.

Barring oil & gas sector, all sectoral indices have opened the day in green with information technology stocks and consumer durables stocks witnessing maximum buying interest. The rupee is trading at 64.53 to the US$.

Gitanjali Gems share price slumped over 10% in the opening trade on the reports that State-run MMTC has decided to terminate its loss-making retail experiment with Gitanjali Gems as unease over the nine-year-old venture mounts, following accusations of Mehul Choksi's involvement in the over Rs 113-billion fraud that has rocked PNB.

However, most investors in stock markets suffer from short-term memory. The past debacles are quickly forgotten with investors making a beeline for dud stocks, only to burn their fingers repeatedly.

Back in July 2013, after the stock of Gitanjali Gems had slumped on charges of market manipulation by its promoters, it was being lapped up by institutional investors hoping to cash-in the long run.

Gitanjali Gems, the Fall Guy

The stock of Gitanjali Gems has nosedived on several occasions since 2013, eroding market capitalisation by over 80%. Its promoter's role in aiding Nirav Modi carry out one of the biggest frauds in the banking history has damaged the stock's position and credibility.

In the news from the IT sector. According to a key projection by Nasscom for 2018-19, software and services exports, the mainstay of the Indian IT industry, will grow 7-9%. This comes in the backdrop of continuing turbulence for the industry.

The country's US$154-billion information technology sector has been buffeted by a broader slowdown in technology spending, while uncertainty looms over work visa rules in the United States, the biggest market for Indian software services firms.

US President Donald Trump has, however, so far not made any drastic changes to the H-1B visa programme, widely used by Indian companies to bring engineers and developers to the US.

A trajectory not entirely different from the 7.8% export revenue growth estimated in the current fiscal, the industry body's projection recognises the uptick in the global economy and technology spend, as well as the challenges impacting the overall positive sentiment.

In FY16 and FY-17, the exports were US$108 billion and US$116 billion. The industry, as per Nasscom guidance, will further expand its digital footprint with a growth of 7-9% for technology services and 10-12% for domestic technology.

Moreover, the current outlook was one of cautious optimism, given that 2017 started in the backdrop of uncertainties across protectionism, Brexit and slowdown in technology spend decision making.

Overall, the industry is expected to add US$14-16 billion in revenue next fiscal. Beginning on a muted note, 2017-18 was driven by a better growth in the second half and expected to clock revenues of US$167 billion.

On the hiring front, the industry would add 1,00,000 new jobs next fiscal, something similar to FY18. Technology jobs in non-technology sectors are expected to grow faster. Overall, the economic growth, rapid technology adoption and progressive policies would remain the key to accelerate job creation in the country, the report noted.

Moving on to the news from banking sector. As per an article in a leading financial daily, the regulator National Housing Bank (NHB) has approved the merger of Capital First along with Capital Home Finance and Capital First Securities Limited with IDFC Bank.

The US based PE firm Warburg Pincus backed non-banking financial company and IDFC Bank with this merger in an all-stock deal, are set to create a Rs 880-billion combined entity.

The share swap ratio for the merger is fixed at 139:10, meaning IDFC Bank will issue 139 shares for every 10 shares of Capital First.

The merger is likely to be completed in the next two- three quarters.

Capital First has a customer base of 3 million and a distribution network in 228 locations across the country.

Further, it's gross and net NPA stood at 1.6% and 1%, respectively as on September 2017.

Post-merger, the combined entity will have an AUM of Rs 880 billion.

Reportedly, the new entity will have a distribution network comprising 194 branches, 353 dedicated banking correspondent outlets, over 9,100 micro ATM points, and will be serving more than 5 million customers.

Currently, private equity firm Warburg Pincus holds 35.97% in Capital First. Notably, IDFC which entered the banking space in 2015, has been on the lookout to grow its retail portfolio.

IDFC Bank share price opened the day up by 0.8%.

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