The Indian stock markets started the day on a lackluster note. They continued to close to the dotted line for the initial part of today's trading session. However in the afternoon session the indices moved sharply upwards, reaching the day's high. In the final hour of trade they moved lower, but ended up closing the day in the green. The market breadth was even with 1.1 advances to every decline. The BSE-Sensex closed in the positive, higher by around 41 points (up 0.2%), the NSE-Nifty also closed higher by around 13 points (up 0.2%). The smaller indices also had a positive day on the bourses. The BSE Mid Cap index and the BSE Small Cap closed 0.3% and 0.2% higher respectively. FMCG and consumer durables stocks saw a bulk of the losses today. banking stocks also closed lower on asset quality concerns. IT stocks however closed well in the positive ahead of the European Central Bank (ECB) meeting.
As regards global markets, Asian indices had a mixed outing today. European indices opened the day on a positive note. The rupee was trading at Rs 55.87 to the dollar at the time of writing.
Rather than the big 4 software companies it's actually the smaller IT firms which are stealing the show. Mid-tier software firms in India have been doing as well or better than their top notch counterparts in recent times. Usually in an economic downturn, the mid-tier segment tends to be more severely impacted as customers prefer to stick with more established players. But this is not the case now. Companies like KPIT Cummins, eClerx, MindTree, Persistent Systems, InfoEdge, NIIT Tech, etc had revenue growth that was well above 20% in each of the last two years i.e. FY11 and FY12. Among the best of these were KPIT Cummins, with growth rates of 46% and 38%; eClerx with 37% and 29%; and Zensar with 25% and 46%. A reason for the stellar growth is because these companies are more specialized and position themselves as such. Hexaware and NIIT Tech focused on the travel and transportation domains, Persistent Systems specialized in outsourced product development, MindTree in manufacturing and KPIT Cummins in automotive and eClerx in knowledge process outsourcing.
According to the Economic Times, there has also been a shift in the structure of deals that has benefited mid-size players. Research firm Information Services Group estimates that contracts in the value range of US$ 25 m to US$ 99 m have surged from 481 in 2008 to 770 in 2011, while contracts with a value of more than US$ 100 m have remained stagnant at 224 over the same time. The fragmentation of deals constitutes a significant opportunity for mid-tier players, given their specialization. These smaller players also benefit from the 18% to 30% price differential versus the top players. Given the current environment it seems that growth is here to stay for these companies.
According to the latest data Reserve Bank of India (RBI), banks are seeing a modest growth in both deposits as well as credit. The annual year-on-year growth in deposits works out to 14%, compared with RBI's projection of 16%. The annual credit growth is 16.7%, almost in line with central bank's projection of 17% for FY13. The credit to deposit ratio is about 73%- this means out of every Rs 100 raised as deposits, banks are lending Rs 73. However, impaired assets across the sector may prove to be the dampener according to ratings firm Fitch Ratings. Absolute cumulative gross non-performing assets (NPAs) at the five largest banks, which account for over a third of the system assets, increased by 62% YoY in the 1QFY13 from a year ago, coupled with a sharp increase in restructured assets.