Infosys margins at all-time low, HCL Technologies' at all-time high

 

 Riken Mehtamoneycontrol.com

The opinion on the street is unanimous for IT sector Infosys  is an underperformer, HCL Technologies  a dark horse and TCS  a consistent outperformer. This has been the view for several quarters now. Infosys’s problems are company specific and clearly the strategy of preserving margins at the cost of revenue growth has backfired.

The EBIDTA margins of Infosys in Q4 slumped to an all-time low of 23.6 percent from 31.07 percent in September 2009, best in the industry at that time. In the same period (Sept 2009 Mar 2013), HCL Tech’s margins improved by 570 basis points to 21.33 percent, close to its all-time high margins of 22.19 percent in the previous quarter.

Infosys has also lost its market share to rivals like HCLTech, TCS and Cognizant. It has been criticized for not utilizing its huge pile of cash reserves for acquisitions compared to HCL Tech and TCS who have acquired several companies in last few years. The margins of Infosys will further contract as the company is now focusing on stepping up revenues but analysts feel it’s a little too late.

Infosys results is a feast day for bears nearly every time

Riken Mehta moneycontrol.com

Bears have profited from Infosys  results on more occasions than bulls, at least on the day of the earnings announcement. As the table below shows, in the past 11 quarters, Infosys shares have closed in the red nine times, shedding between 3-12 percent. 

Bulls have not done too well, even over a longer time frame. In the last 23 quarters, they have managed to trump the bears only on seven occasions.

The weakness in the stock on results day does not every time have to do with missing earnings guidance. Even when the company has managed to meet or better market expectations, unwinding of speculative positions built in anticipation of good numbers has led to pressure on the stock.

Results Date	Close	Change	% Chg
11-Oct-07	1,976.85	-148.2	-6.97
11-Jan-08	1,581.75	-20.8	-1.3
15-Apr-08	1,510.40	88.5	6.22
11-Jul-08	1,676.85	-128.4	-7.11
10-Oct-08	1,225.20	-29.05	-2.32
13-Jan-09	1,228.15	68.45	5.9
15-Apr-09	1,370.60	-38.7	-2.75
10-Jul-09	1,721.15	43.6	2.6
9-Oct-09	2,177.60	-33.2	-1.5
12-Jan-10	2,586.95	97.3	3.91
13-Apr-10	2,781.90	98.8	3.68
13-Jul-10	2,796.75	-99.15	-3.42
15-Oct-10	3,076.30	-108.95	-3.42
13-Jan-11	3,205.20	-172.1	-5.1
15-Apr-11	2,989.50	-316.7	-9.58
12-Jul-11	2,791.55	-129.6	-4.44
12-Oct-11	2,679.35	174.8	6.98
12-Jan-12	2,588.25	-238.35	-8.43
13-Apr-12	2,402.55	-348.1	-12.66
12-Jul-12	2,264.40	-206.6	-8.36
12-Oct-12	2,395.35	-137.85	-5.44
11-Jan-13	2,712.10	389.8	16.79

 

Bear attack: Nearly 30% BSE stocks trading below 2008 lows

Riken Mehta
Moneycontrol.com

This is turning out to be a nasty bear phase; in fact worse than the meltdown during the global financial crisis of 2008.

According to data analysed by moneycontrol.com, 697 out of 2400 actively traded stocks on the BSE are trading below the lows seen in late 2008. Back then, most of the stocks managed to recoup a good chunk of the losses as the market rallied dramatically. Two events changed sentiment for the better; one was the UPA coalition returning to power without the support of the Left parties, and the other was the stimulus package that helped sustained the growth momentum in the economy.

Today, the situation is equally bad if not worse. The economy has stalled, corporate earnings are weak, and political turmoil is holding the government back from taking any major reform measures.

But the key difference between 2008 and now is that many of the problems are company-specific, than having to do with the broader economy. In many of the midcaps and small caps which have fallen 50-80 percent, investors are more worried about accounting policies and corporate governance standards than the earnings growth rate.

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Index	Below 2008 Lows	Total Scrips
Sensex	1	30
Nifty	2	50
BSE 100	9	100
BSE 200	17	200
BSE 500	63	500
MIDCAP	20	249
SMLCAP	75	514

 

Four key events to watch out next week- Infosys, IIP, Trade Balance, Indian Rupee

Riken Mehta
Moneycontrol.com

It has been a bearish start to the first week of the new financial year, with the Sensex lighter by 400 points. The weakness spread to large caps as foreign-owned exchange traded funds are said to have been net sellers of equities, faced with redemption requests from their unitholders in home markets. This has further undermined sentiment, already weighed down by political uncertainty and a slowing economy.

US and Japanese shares are trading at multi-year highs and key European markets have stabilized after the initial nervousness over the bail-out of Cypriot banks.

Investors will now turn their attention to four key events next week.

1. April 10: Trade Balance Data - March

The trade balance data which is the net figure of India’s exports and imports for March, will signal how the annual current account deficit numbers will shape up for FY13. The current account deficit number hit a record high of 6.7 percent of GDP in the October-December quarter, driven mainly by huge trade deficit. The market will closely monitor this figure.

2. Indian Rupee

Another key variable to track will be the rupee. The currency, trading at one-month low, is unable to take advantage of gold prices fallen to a 10-month low. Gold import is one of the prime factors for record-high current account deficit. The other import constituent, Brent crude is trading close to $106.50 per barrel, a fresh five-month low.

3. April 12: Index of Industrial Production (IIP) - February

Index of Industrial Production (IIP) numbers for the month of February will be announced. The eight core industries growth, accounting for 38 percent of the IIP, contracted 2.5 percent in February, a record low performance in decades which should prepare the market for some depressing data. The IIP numbers for January was 2.4 percent, higher than the 1.2 percent estimated by a CNBC-TV18 poll.

4. April 12: Infosys - Fourth Quarter Earnings

Infosys  will announce its fourth quarter numbers on April 12 and set the tone for the near term movement in IT shares. Angel Broking expects former IT bellwether’s EBITDA margins to decline by 91 basis points quarter-on-quarter to 27.6 percent, because of wage hike of 2-3% to onsite employees. The annual guidance for FY14 will be the deciding factor.

Indian Government decontrols sugar: 7 things you need to know

Nasrin Sultana, Riken Mehta
Moneycontrol.com

Cabinet Committee on Economic Affairs (CCEA) on Thursday finally decided to decontrol sugar with certain riders. The sugar industry was the only industry left under the government control. It is learnt that the decontrol is largely in line with recommendations made by the Rangarajan committee . 

What does decontrol mean?

1. Decontrol means no government control. It will no longer force mills to sell sugar to the government at a discount and wont put a limit on the amount that they can sell in the open market.

2. No levy obligation on sugar mills for 2 years. Levy sugar is the amount of sugar set aside from the total production for Public Distribution System (PDS). In levy sugar system, millers were required to contribute 10 percent of their output to the Centre for running ration shops at cheaper rate. This costed the industry Rs 3,000 crore a year, an amount sugar industry will now be able to save.

3. Release order mechanism by which government directed sugar companies as to when, how much to release sugar now goes away.

4. The government will buy sugar from the open market at market rates and subsidise it to PDS. The government will pay the difference between ex-mill and PDS price. Cabinet fixed the price of levy sugar at Rs 13.50 a kg in 2002 and it was never changed since then. 

5. The government will bear Rs 5300 crore PDS sugar subsidy.

6. No hike in excise duty on sugar. Currently it is Rs 95 per quintal

7. Ex-mill sugar price will be capped at Rs 32 per kg for PDS

The government maintained that the decision will not lead to any rise in retail prices of sugar. However, it would double the government's subsidy burden to Rs 5,300 crore annually from about Rs 2,600 crore.