Sensex Opens Flat; Infosys Down 4.1%

Mon, 21 Aug 09:30 am

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Asian stock markets opened mixed in early trade today. Hong Kong Hang Seng has advanced 143 points and China's Shanghai Composite has gained 9 points. While, Japan's Nikkei 225 has declined 88 points. European markets tumbled on Friday as investor sentiment was negatively impacted by terror attack in Barcelona.

Back home, share markets in India have opened the day on a flat note. The BSE Sensex is trading higher by 59 points, while the NSE Nifty is trading higher by 33 points. The BSE Mid Cap and BSE Small Cap index both opened the day up by 0.4%.

The majority of the sectoral indices have opened the day in the green with metal stocks and oil & gas stocks leading the losses. The rupee is trading at 64.12 to the US$.

Information technology stocks opened the day on a mixed note with Mphasis Ltd & Tech Mahindra leading the gains. In the latest development, Infosys Ltd. approved 130 billion rupees (US$2 billion) share repurchase to improve returns for stakeholders of the Indian software exporter a day after Chief Executive Officer Vishal Sikka quit amid heightened tensions between the board and founders led by ex-Chairman N R Narayana Murthy.

Infosys voted to buy back as many as 113 million shares at Rs 1,150 (US$17.94) apiece at a meeting on Saturday in Bangalore.

The company's first buyback comes as cash and investments swelled to about US$6.1 billion at the end of June. The meeting to consider the move was scheduled before Sikka announced his decision to resign.

Investors, who have been asking the company to return part of its cash hoard, lost US$3.5 billion as Infosys's market value plunged on Friday following Sikka's resignation. The planned repurchase is at a 25% premium to Friday's close.

One must note that earlier this year, rival Cognizant Technology Solutions Corp. agreed to repurchase about US$3.4 billion of stock and Tata Consultancy Services Ltd. approved a 160 billion rupee-share repurchase.

Speaking of timeless stocks, the IT sector was much favored amongst investors since the turn of the decade. IT giants like TCS, Infosys were considered a safe bet at any price. With Infosys' CEO's resignation, it caps off a miserable 3 year run for IT stocks.

The top 4 IT companies have underperformed the benchmark. With the sector heavily dependent on US customers, Trump's protectionist policy announcements have further dampened the mood in this sector.

Underperformance of Top IT Stocks

However, as per Rahul Shah, Co-head of Research, current valuations of top IT companies are at multi-year lows. But is this the new normal? As per him, the challenge is to find the companies better placed than others to adapt to this structural change.

Moving on to the news from the banking sector. ICICI Bank Ltd. on Friday cut interest rates payable on savings deposits as it follows both public and private sector peers in paring costs, becoming the eleventh bank to do so.

The bank reduced the interest rate on savings deposits below Rs 5 million by 50 basis points to 3.5% per annum. The rate on deposits worth Rs 5 million or above was kept unchanged at 4%.

One must note that, demonetisation in November last year had triggered a surge in bank deposits, which were expected to flow back into the system once the withdrawal limits were raised in March.

However, the deposits have proved to be sticky at a time when credit growth in the banking system is moderate and liquidity is ample. Banks have used this as an opportunity to bring down their costs of deposits.

The country's largest lender SBI was the first to reduce the interest rate on savings deposits worth Rs 10 million and below to 3.5% from 4% earlier. Axis Bank too said that it will offer 3.5% interest on savings accounts worth Rs 5 million and below compared with 4% earlier.

Recently, HDFC Bank and state-owned Punjab National Bank cut savings rates by a half a percentage point.

ICICI bank share price opened the day up by 1.7%

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