Sensex Plummets 390 Points; Infosys Continues to Fall

Fri, 18 Aug 01:30 pm

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After opening the day on a negative note, the share markets in India continued to witness selling pressure as Infosys cracked after Vishal Sikka's resignation as MD & CEO. Barring energy stocks, all sectoral indices are trading in red, with stocks in the information technology sector & healthcare sector leading the losses.

The fall in Infosys share price has led to a steep fall in the market capitalization of the company.

As of closing price on Thursday, Infosys had a market cap at Rs 2345.5 billion. Meanwhile, this figure came down to Rs 2179.5 billion.

The BSE Sensex is trading lower by 343 points (down 1.1%) while the NSE Nifty is trading lower by 91 points (down 0.9%). The BSE Mid Cap index is trading down by 0.6%, while BSE Small Cap index is trading up by 0.5%. Gold prices, per 10 grams, are trading at Rs 29,286 levels. Silver price, per kilogram is trading at Rs 39,281 levels. Crude oil is trading at Rs 3,024 per barrel. The rupee is trading at 64.24 to the US$.

Telecom stocks are trading on a mixed note with GTL and MTNL leading the losses. As per an article in a leading financial daily, the Indian telecom sector could generate 3 million jobs by 2018 on the back of rapid 4G technology deployments, rising data consumption, use of digital wallets and smartphone adoption.

Further, emerging technologies such as 5G, M2M and the evolution of information and communications technology are expected to create employment avenues for almost 0.9 million individuals by 2021.

The optimistic job assessment comes at a time when telecom companies are battling financial stress and competition has led to a free fall in tariffs, putting pressure on revenue and profitability of operators.

Meanwhile, the whole telecom business has been an underwhelming story so far. While the telecom subscriber base has increased from 300 million in 2008 to 1.2 billion in 2017, investors have little to cheer. The BSE Sensex has gone up 3.25 times in nine years, but the BSE Telecom Index has not moved an inch from its levels of 2008.

Telecom Sector: A decade of Underperformance

Telecom companies are straddled with high debt, intense competition, and lack of pricing power. High spectrum costs and regulatory issues have hampered the sector.

While consumers have benefited from low costs and new players fighting for their share, investors have suffered.

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In another development, as per Moody's Investor Service, earnings of Indian steel companies will rise in the next 12 months riding on rising domestic demand and protectionist measures.

Reportedly, healthy GDP rate of growth of 7.5% to 7.8% in 2017 and 2018, coupled with government's fiscal stimulus and rising infrastructure spends will underpin the demand.

One must note that, this expectation comes despite an increase in raw material prices and higher production volumes arising from new capacity additions.

Out of the two rated Indian steel companies, earnings of JSW Steel are expected to remain steady, while that of Tata Steel is set to increase significantly in the coming 12 months.

However, speaking of steel sector, as per our research analyst Sarvajeet Bodas, the bigger concern is weak consumption growth. Here's an excerpt of what he wrote:

• "The consumption data over the past few months clearly show that there are no takers for domestic steel. So steel makers have been forced to export more, with overseas shipments up by 78% YoY in the fiscal till February.
  
  We do not think the trend is sustainable. And unless domestic consumption picks up, steel producers may have to take price cuts to utilize their capacities".

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