Sensex Opens Over 300 Points Up; Infosys Rallies on Strong Q2 Result

Wed, 17 Oct 09:30 am

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Asian stocks are higher today. Japan's Nikkei rose 1.3%. MSCI's broadest index of Asia-Pacific shares outside Japan added 0.5% and South Korea 1.5%. The US stocks surged more than 2% on Tuesday after upbeat earnings reports from major companies including UnitedHealth and Goldman Sachs and solid economic data, as equities rebounded from a recent sharp sell-off.

Back home, India share markets have opened the day on strong note. The BSE Sensex is trading up by 313 points while the NSE Nifty is trading up by 88 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.9% & 1% respectively.

All sectoral indices are trading in green with information technology stocks and bank stocks witnessing maximum buying interest.

The rupee is trading at Rs 73.47 against the US$.

Speaking of the recent sell off in the stock markets, many good companies have corrected quite a bit.

The chart below shows the current mood of the market. Headline indices have corrected significantly from their peaks in 2018.

Are These Deep Corrections a Buying Signal?

These corrections are a clear sign of fear across sectors and individual stocks.

As per Research analyst, Ankit Shah, the correction could last longer.

But looking at the history of equity returns, he believes this would be just a passing correction phase.

Despite all the volatility and periodic crashes, equities are still one of the most rewarding and safe asset classes over the long run.

In the news from the IT sector. Infosys Ltd posted a surprise 3.2%-dollar revenue growth in the September quarter (Q2) from the preceding three months, the fastest sequential growth by India's second-largest information technology (IT) services company in more than a year.

In constant currency terms, Infosys's Q2 revenue rose 4.2% from the preceding three months. Currency fluctuations, however, took some sheen off the company's growth as dollar revenue increased at a slower pace to US$2.92 billion in the quarter ended 30 September.

Infosys last posted a 3.2% sequential dollar revenue growth in the June quarter of 2017.

Net profit rose 0.5% to US$581 million in the September quarter from US$578 million in the preceding three months. Operating margin was 23.7%, same as in the June quarter.

Infosys's better-than-expected performance was largely helped by a 4.7% sequential growth from clients in the financial services space, which contributed to 32.2% of revenue.

A 4.9% increase in business from retail clients, accounting for about 17% of revenue, also helped the company. For the first time in its history, Infosys won over US$2 billion in new deals in a quarter.

Infosys still faces challenges. Despite its performance in the second quarter and a weakening rupee, it has maintained its full-year operating margin between 22% and 24% and expects revenue to grow between 6% and 8% in constant currency terms.

The company does not give a dollar revenue outlook, but it runs the risk of growing at the slowest pace in three years. Infosys reported a 0.9% sequential dollar revenue growth in the first quarter.

Infosys's year-on-year growth continues to be sluggish. In contrast, TCS, which last week posted a 3.2% sequential dollar revenue increase in the second quarter, has managed a double-digit year-on-year growth for three straight quarters.

Infosys share price opened the day up by 2.7%.

Moving on to the news from automobiles sector. Hero MotoCorp Ltd reported a 3.4% year-on-year decline in net profit to Rs 9.8 billion during the September quarter (Q2) due to higher raw material costs and other expenses amid subdued demand in key markets of Kerala and West Bengal.

Hero MotoCorp witnessed 5.4% y-o-y increase in two-wheeler sales to 2,134,051 units during Q2FY19 due to reduced sales in West Bengal after that state's government made it mandatory to have a driving licence to buy a two-wheeler.

Sales in Kerala took a hit due to the floods. Recovery in rural markets in the rest of the country offset the sales slump, thanks to yet another year of normal monsoon.

Revenue, or net sales, during Q2FY19 increased by 8.5% y-o-y to Rs 90.9 billion.

As a consequence of increasing oil and other commodity prices like steel, Hero MotoCorp's raw material expenses for the September quarter rose 13.6% to Rs 64 billion. Other expenses went up 18.6% to Rs 9.8 billion due to higher advertisement costs. A depreciating rupee that made imports of certain materials expensive did not help either.

Consequently, Earnings before Interest, Tax, Depreciation and Amortization (Ebitda), a measure of operating profit of a company, declined 5.2% y-o-y to Rs 13.8 billion while operating margins contracted 220 basis points to 15.2%.

Hero MotoCorp share price opened the day down by 0.5%.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

By the way, in our latest edition of the stock market podcast, we have our Research Analyst, Radhika Pandit present a contrary view on PSU sector. She talks about good PSU stocks that you must look at. Listen in... visit SoundCloud, iTunes or Stitcher.

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

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