How market-cap of CNX IT stocks moved in last three years

Riken Mehta
Follow me on Twitter @mehtariken

IT stocks have been on a roll for several months now on renewed optimism in the developed economies of US and UK that will lead to more outsourcing of software contracts to Indian IT companies coupled with rupee depreciation. Let's analyse how market-cap of CNX IT companies have moved in last three years.

Infosys market-cap has surged only 7 percent in last three years as company lagged its peers with slower revenue growth, falling margins, higher attrition rate and reluctance to avoid big ticket acquisitions and sticking to old strategies. TCS   market-cap is 115 percent higher compared to Infosys today while the difference was merely 7% in 2011.

TCS topped Infy as IT bellwether and surprised the street every quarter with its consistent strong performance despite weak macro environment in US and UK in 2011 and 2012.

HCL Tech   has emerged as a dark horse in the entire pack trebling its market-cap in last three years. Improved business strategies, strong leadership, acquisition of higher bracket clients and clocked higher EBIT margins over the years.

Infosys current market-cap of Rs 214078 crore is less than TCS market-cap in Jan 2011 (Rs 226656 cr). Infosys has not even managed to cross TCS market-cap (in 2011) in last three years.

TCS current market-cap is more than combined total market-cap of remaining 18 CNX IT stocks (barring Infosys) In 2011, TCS market-cap was 14% higher compared to Infy. Today TCS market-cap is 115% higher compared to Infy.

Infosys market-cap has surged only 7% in last three years. It has underperformed 14 IT stocks in CNX IT index in last three years.

The difference of market-cap between Wipro (3rd largest) and HCL Tech (4th largest) was 74% in 2011. Today the gap between two has narrowed to 32%.

Tech Mahindra 's market-cap was less than that of Mphasis in Jan 2011. Today, Tech Mahindra's market-cap is 5 times that of Mphasis. In 2011, Mphasis was 6th largest company in terms of market-cap and today Tech Mahindra is 5th largest while Mphasis is 7th.

Tech Mahindra’s market-cap was less than combined market-cap of MindTree , Vakrangee , Hexaware, CMC and KPIT . Today Tech Mahindra’s market-cap has nearly doubled the combined market-cap of MindTree, Vakrangee, Hexaware, CMC and KPIT.

Vakrangee’s market-cap has surged from Rs 700 cr in (Jan 2011) to Rs 4700 cr (nearly 600%) in last three years.

In 2011, Vakrangee was not even a part of CNX IT index and today its 10th largest IT stock in terms of market-cap (Top 10 IT stocks).   Only 5 CNX IT stocks out of 20 have posted negative returns in last three years. Core Education has lost 91% of its market-cap in last three years. (From midcap it has become smallcap stock)

How Infosys has moved in earnings seasons

Riken Mehta
Follow me on Twitter @mehtariken

Check out how Infosys/Infy has moved in earnings seasons

Pre-Result rally is rally from start of the month to one day before results
Post-Result rally is rally from closing price on result day to end of that month

Month	Pre-Result Rally	Result Day	Post-Result Rally
Jan-12	2.13%	-8.43%	6.09%
Apr-12	-4.03%	-12.66%	2.48%
Jul-12	-1.52%	-8.36%	-1.65%
Oct-12	-0.07%	-5.44%	-1.35%
Jan-13	0.16%	16.79%	2.85%
Apr-13	0.95%	-21.30%	-2.61%
Jul-13	1.18%	10.91%	5.90%
Oct-13	3.80%	4.70%	1.08%
Jan-14	-1.00%

CNX IT index at multi-year high; Infosys, TCS, HCL Tech, Wipro at multi-year high

Riken Mehta
Follow me on Twitter @mehtariken 

IT stocks have been one of the biggest wealth creators for investors over the years. CNX IT index, barometer of IT stocks has recorded fresh highs since 2004. The index has gained 211 percent in last nine years while rupee has depreciated 40 percent in the same period. Heavyweights like Infosys, HCL Tech, TCS and Wipro are trading at multi-year highs as strong US economy coupled with weak rupee favours IT stocks.

N Chandrasekaran, CEO and managing director of India's largest IT software company TCS also painted bullish picture for FY15. “FY15 will be a better than FY14 as per the initial talks that we have had with our clients. We expect a good growth overall -- retail, consumer goods and services, utilities, pharma, financial services, etc," N Chandrasekaran told reporters.

 

Is Infosys slowly narrowing valuation gap with TCS?

Riken Mehta
Moneycontrol Bureau 

Follow me on Twitter @mehtariken 

Most IT analysts recommend TCS over Infosys to clients looking to bet on the IT services sector. The bias is evident from the valuation (measured in terms of the trailing 12 month price earning multiple) that investors are willing to pay for TCS as opposed to Infosys. A string of depressing quarterly earnings from Infosys caused the valuation gap to widen by as much as 60 percent at one stage. That gap has been narrowing of late, despite TCS reporting a superior set of quarterly numbers. One of the explanations for this trend could be that the TCS stock is already discounting most of the positives. The earnings upgrades for Infosys post second quarter earnings could be another factor. But it could still be a long road ahead for Infosys before it manages to close the gap altogether.

Infosys earnings: How Infy P/E contracts/expands on result day

Riken Mehta

Infosys may have lost its mojo as the IT bellwether in past few years but it still remains the darling stock for option traders ahead of its quarterly earnings. Erratic movements of Infosys stock price post results have rewarded bearish traders with huge chunks of money every three out of four occasions in the last 12 quarters.

Infosys will announce its second quarter results of FY14 on October 11 and the F&O traders once again have positioned themselves in the Infosys for a big vicious movement post results.

In today’s article, we will compare how the price earning multiple (P/E) of Infosys changes before and after result announcement.

Price earnings multiple is calculated by dividing the stock price to earnings per share of the company. In simple terms, if Infosys P/E is 18, it means the company will take 18 years to generate profits equal to the current market price based on the current earnings per share.

For calculation, we have taken trailing 12-month consolidated EPS. The average change in P/E for Infosys on the result day for last 12 quarters or 3 years (15-Oct-10 to 11-Jul-13) is 2.45.  

The management’s commentary on different business verticals performance, revision in guidance, client’s spending scenario and key business verticals exit are some of the factors along with quarterly earnings performance that the market will watch it closely on result day and based on them market will factor it in price.

Currently, its trading at 18.67 P/E based on consolidated EPS (Price Rs 3100). Considering the huge built-up in options and based on the quarterly earnings performance on either side if the stock's P/E changes by an average 2.45  (assuming Infy posts close to Rs 42 EPS in Sept quarter as well, TTM EPS will be Rs 166 ) then expect 400 rupees or 13 percent movement on either side (CMP Rs 3100). In that case, option buyers will not make money

If TTM EPS expands or contracts by 5% (TTM EPS Rs 175, Bullish scenario where Infy posts an EPS close to Rs 50 or TTM EPS Rs 158 highly bearish scenario where Infy posts an EPS close to Rs 33) then change in P/E and price adjustment will take Infy close to Rs 3700 (Bullish) or Rs 2550 (Bearish) translating Rs 550-600 movement on either side.

QUARTER	EPS	TTM EPS	Prev Day	Prev Day P/E	Result Day	Result Day P/E	Change in P/E	Price % Chg
11-Jul-13	41.54	166.36	2526.75	15.32	2802.75	16.85	1.52	10.92%
12-Apr-13	41.89	164.88	2,917.85	17.84	2,295.45	13.92	-3.92	-21.33%
11-Jan-13	41.47	163.53	2,322.30	14.20	2,712.10	16.58	2.39	16.79%
12-Oct-12	41.46	163.57	2,533.25	16.29	2,395.35	14.64	-1.65	-5.44%
12-Jul-12	40.06	155.47	2,471.00	16.98	2,264.40	14.56	-2.41	-8.36%
13-Apr-12	40.54	145.55	2,750.65	20.10	2,402.55	16.51	-3.60	-12.66%
12-Jan-12	41.51	136.83	2,826.65	22.35	2,588.25	18.92	-3.43	-8.43%
12-Oct-11	33.36	126.47	2,504.55	20.28	2,679.35	21.19	0.91	6.98%
12-Jul-11	30.14	123.52	2,921.15	24.46	2,791.55	22.60	-1.86	-4.44%
15-Apr-11	31.82	119.44	3,306.20	28.52	2,989.50	25.03	-3.49	-9.58%
13-Jan-11	31.15	115.93	3,377.30	30.01	3,205.20	27.65	-2.36	-5.10%
15-Oct-10	30.41	112.53	3,185.30	29.21	3,076.30	27.34	-1.88	-3.42%
13-Jul-10	26.06	109.03	2,895.90	26.42	2,796.75	25.65	-0.76	-3.42%
13-Apr-10	28.31	109.63	2,683.10	24.51	2,781.90	25.38	0.87	3.68%
12-Jan-10	27.75	109.48	2,489.65	22.55	2,586.95	23.63	1.08	3.91%
9-Oct-09	26.91	110.39	2,210.80	20.38	2,177.60	19.73	-0.65	-1.50%
10-Jul-09	26.66	108.5	1,677.55	16.04	1,721.15	15.86	-0.18	2.60%
15-Apr-09	28.16	104.59	1,409.30	14.34	1,370.60	13.10	-1.24	-2.75%
13-Jan-09	28.66	98.26	1,159.70	12.72	1,228.15	12.50	-0.23	5.90%
10-Oct-08	25.02	91.14	1,254.25	14.69	1,225.20	13.44	-1.25	-2.32%

Infosys results: Straddle, strangle option trades prove futile

Riken Mehta
Follow me on Twitter @mehtariken

Shares of Infosys  surged more than 12 percent in the opening bell after the former IT bellwether beat street expectations with its first quarterly earnings. Infy's net profit fell lower-than-expected by 0.8 percent at Rs 2,374 crore compared to the previous quarter. Rupee revenue also jumped 7.8 percent to Rs 11,267 crore from Rs 10,454 crore.

Analysts on an average were expecting net profit at Rs 2,315 crore on revenue of Rs 11,029 crore for the quarter.

The volatility in Infosys stock options hit a five-year high on Thursday as bulls and bears were anticipating big moves on either side. CNBC-TV18’s Anuj Singhal reported that implied volatility in the Infosys stock options had jumped to 90 percent compared to the historical volatility of 66 percent. The options were heavily overpriced ahead of the results and extreme movement in Infosys only would have made straddle/strangle strategy profitable. In the last 12 quarters (July 2010-April 2013) Infosys closed only twice in the green.

Long straddle strategy involved buying an Infy 2500 call and put of the same strike price. At closing price on Thursday the net investment would have been Rs 342. At 9.35 am, Infy 2500 call was trading at Rs 335 while Infy 2500 Put was trading at Rs 5. At this price, long or short straddle strategy will make no money for traders.

Long strangle involved buying out of money options. Infy’s 2600 Call closed at Rs 145 while 2400 Put closed at Rs 116.7. Net investment turns out to be Rs 262.2. On Friday morning, Infy 2600 call was trading at Rs 241 while Infy 2400 Put was trading at Rs 3.75. At this price, Strangle strategy will be loss-making for traders. Straddle strategy of Infy 2700 call and 2300 Put would also have resulted in loss.

Overall, the traders would have made little money in these strategies if they would have booked profits in the first five minutes of opening bell. For rest, it would have been neutral or loss making.