Sensex Opens Marginally Down; TCS Rallies on Strong Q4 Results

Fri, 20 Apr 09:30 am

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Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.1% while the Hang Seng is down 0.4%. The Shanghai Composite is trading down by 1%. Wall Street's three major indices closed lower on Thursday, with tobacco stocks leading a tumble in consumer staples while concerns about smartphone demand hurt the technology sector and rising bond yields and earnings helped financials rebound.

Back home, India share markets opened the day marginally lower. The BSE Sensex is trading down by 41 points while the NSE Nifty is trading down by 12 points. The BSE Mid Cap index and BSE Small Cap index both opened the day down by 0.3% & 0.1% respectively.

Sectoral indices have opened the day on a mixed note with IT stocks and energy stocks witnessing buying interest. While, metal stocks & bank stocks have opened the day in red. The rupee is trading at 65.78 to the US$.

In the news from the FMCG sector. As per an article in a leading financial daily, Procter & Gamble Co. (P&G) has agreed to purchase the consumer health business of the German drug maker, Merck.

Reportedly, the US$4.2 billion deal will add about US$1 billion in annual revenue, roughly 3,000 employees and more than 900 new products to P&G's health care portfolio.

P&G's health care brands, including Vick's, Metamucil, Crest and Oral-B, already generate US$7.5 billion in annual sales, about 12% of P&G's total revenue. The acquisition, expected to close in the next 14 months, will bring to P&G vitamin brands and over-the-counter remedies for muscle, joint and back pain that are now sold in 44 countries.

The acquisition is the biggest in years for P&G, which spent much of the last decade selling off under-performing brands and struggling to restore growth with those it retained.

One shall note that, it was announced hours before P&G disappointed investors with a third-quarter earnings report that declining revenue in two of its biggest categories: Shaving and baby care.

P&G share price opened the day up by 0.2%.

Moving on to the news from IT sector. TCS share price surged 3.4% in the opening trade after it reported a 4.5% year-on-year (yoy) rise in consolidated net profit at Rs 69 billion for the March quarter.

The IT services, consulting and business solutions firm had reported Rs 66.1 billion profit in the same quarter last year. It had reported negative profit growth in the previous three quarters of the financial year.

On a sequential basis, the IT major reported 5.7% growth in profit.

Consolidated net sales for the quarter rose 8.2% to Rs 320.8 billion compared with Rs 296.4 billion in the year-ago quarter. The company had reported a sales growth of 3.9% in October-December and 4.3% in July-September.

The board has approved a bonus issue of equity shares in 1:1 ratio. The outsourcing firm has also announced a final dividend of Rs 29 per share.

The Tata Group company said all industry verticals -- with the exception of BFSI -- grew above the company average, with three verticals growing in double digits. Growth was led by the energy and utilities vertical (up 33.7%), travel and hospitality (25.4%) and life sciences and healthcare (12.6%).

The software major's total headcount stood at 3,94,998 at the end of the March quarter on a consolidated basis. The IT Services attrition rate (last 12 months) edged 0.1% lower to 11% while the total attrition rate (including BPS) fell to 11.8%.

Volume growth for the quarter stood at 2%.

The company said its operating cash flow at 121.7% of profit for the fourth quarter was its highest ever. It noted that 23.8% of its revenue came from the digital vertical, which grew 42.8% on an annual basis. Greater adoption of digital technologies by customers resulted in several large, multipractice integrated deal wins.

For the year, the company added three clients in US$100 million plus category, 13 in US$50 million slab, 17 in US$20 million and 40 in US$10 million slots.

Speaking of IT sector, during the financial year 2017-18, the BSE IT index gained over 19% during the same period. While, the BSE Sensex delivered a return of about 11%.

Now, that's a significant outperformance. If you were holding some solid IT stocks last year, you have most likely fared better than the Sensex. But last year, the markets were not as optimistic on the sector as they are now.

Look at the chart...

How It Paid Off to Bet on the Uncertainties in the IT Sector

During the first half of 2017-18, the IT sector was among the underperformers, and it was lagging way behind the Sensex. In fact, until October 2017, the index was still hovering near levels seen in April 2017.

But once the mood of the market changed, the IT index not only recovered, but went on to outperform the Sensex.

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