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Sensex Opens Marginally Higher; Tech Mahindra Up 5.4% on Strong Q1 Result
Tue, 1 Aug 09:30 am

Asian indices are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.44%, while the Hang Seng is up 0.50%. The Nikkei 225 is trading up by 0.17%. US stocks closed mixed on Monday. The Dow scaled to another new record closing high.

Back home, share markets in India have opened the day marginally higher. The BSE Sensex is trading higher by 52 points while the NSE Nifty is trading higher by 20 points. The BSE Mid Cap and BSE Small Cap index opened the day up by 0.4% & 0.2% respectively.

Barring power stocks, all sectoral indices have opened the day in green with realty stocks and consumer durable stocks leading the gains. The rupee is trading at 64.08 to the US$.

Information technology stocks opened the day on a mixed note with Tech mahindra and Mphasis leading the gainers. Tech Mahindra share price surged 5.4% after it posted a 6.5% rise in net profit at Rs 7.99 billion for the quarter ended 30 June.

This is against a net profit of Rs 7.49 billion in the year-ago period.

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Revenues of the software exporter grew 6% to Rs 73.36 billion in the reported quarter as against Rs 69.21 billion in the corresponding quarter last year.

In dollar terms, the company's net profit was up 11.2% to US$ 123.8 million, while revenues grew 10.3% to US$ 1.13 billion in April-June 2017 quarter from the year- ago period.

One must note that, Indian IT firms are posting muted earnings growth hurt by wage hikes, stronger rupee and slower pace of large deal closures, amid uncertainty surrounding protectionist measures in the United States.

So, are you worrying about IT stocks? If you are, then I highly recommend our co-head of Research Tanushree's 5 Minute WrapUp from 3 February - How To Act On the Trump Crash in IT Stocks. Here's an excerpt.

  • "We believe, if they respond to this challenge well and differentiate themselves from their peers, certain Indian IT companies could not only survive but thrive.

    In this new era of disruption, only firms run by managements who believe in agility will do well. Thus, in this sector, it is imperative to bet on the jockeys as much as it is the horses. Taking a blanket negative view on the sector would be wrongheaded."

Moving on to the news from stocks in aviation sector. Interglobe Aviation, the parent of the country's largest domestic airline IndiGo, posted its highest-ever quarterly profit of Rs 8.11 billion for the April-June quarter of 2017-18, up 37.1% year-on-year.

During the quarter, IndiGo saw its overall passenger load factor increased by 4.7%, while its yields grew 2% over the same period a year ago.

Profit rose on a 25% increase in revenues for the March-April 2017 period to Rs 59.56 billion. Also, the airline's non-fuel cost, measured in terms of cost per available seat kilometer (CASK) excluding fuel, dipped by 2.5%.

Separately, the airline announced a significant change in its aircraft acquisition strategy, switching to outright purchase from the current sale-and-leaseback model.

The primary purpose of following the six years sale-and-leaseback model is to move aircraft out of the system quickly after the new technology aircraft comes into the market, the company stated.

Notably, 2017 started off on a brilliant note for aviation stocks. Crude prices had crashed. And lower cost of air turbine fuel suddenly changed the economics of the aviation business. Lower costs, therefore, meant the possibility of the companies reporting profits at least at the operating level.

A Good Year For Aviation Stocks

To add to that, Buffett did something in the last quarter of 2016 that Buffett aficionados would consider unimaginable. He poured upwards of US$ 2 billion a piece into the four largest US airline stocks.

The interest in aviation stocks has dimmed since then. And with the only profitable airline in India, Indigo showing the willingness to take the humungous amount of debt on its books, we wonder if aviation stocks will continue to find takers.

As per Rahul Shah, Co-head of Research, it is important to note that certain industries have relatively dull economics compared to others. And investors would do well to keep this in mind, particularly in the case of aviation. Investors need to understand the industry dynamics before buying up aviation stocks.

InterGlobe Aviation share price surged 2.2% in the morning trade.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Aug 17, 2017 02:32 PM

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