Markets End Week On Negative Note As Infosys Disappoints Street

After posting some marginal gains for the previous two weeks, the equity markets tanked by more than 2 per cent this week as both key events – the industrial production figures for February 2012 and IT bellwether Infosys’ March quarter results - disappointed the street expectations.

While the IIP for February came in at 4.1 per cent owing to a surprising bounce-back in mining and capital goods’ output, it was astonishing to see the correction in January IIP data to 1.1 per cent from the earlier erroneously reported 6.8 per cent. Earlier in the week, investors and traders also received a jolt when the natural gas regulator whimsically decided to cut the network tariff and compression margins for Indraprastha Gas on its sale of gas business. For time to time, it has been observed that the government, either directly or indirectly through its various agencies, has been despicably harming the investor sentiments and making the equity markets a scary space to invest in.

Another reason for the under-performance of the markets this week can be owed to the lackadaisical show by IT major Infosys in the January-March 2012 quarter. While the company saw its topline and bottomline decline by 5 per cent and 2 per cent on a quarterly basis, the markets were further shocked by the weak guidance for the quarters going forward. On the EPS side, Infosys, in the June 2012 quarter, is expecting the rupee EPS to grow by 22.4 per cent on a YoY basis to Rs 36.89. However, this is much lower as compared to Rs 40.54 reported during the March quarter. And for FY13 it is expecting the EPS to be in the range of Rs 158.70-161.41 with growth of 9.1-10.9 per cent on a YoY basis.

The situation on the global front too seems very gloomy. While investors in Europe at the start sounded very upbeat on the ECB’s long-term refinancing operations (LTRO), hailing the easing fear of a near-term banking collapse as trillion euros of liquidity were pumped into the euro zone banking system via cheap, three-year loans, the sudden spike in the Spanish bond yields have created an air of panic. With a gross borrowing of nearly Euro 319 billion as against the total LTRO outlay of Euro 529 billion, the sudden upsurge in the Spanish government yields have shown clear signals of the re-emergence of the sovereign debt crisis.

Back home, among the sectoral indices, the IT Index was among the leading index losers as Infosys plunged by nearly 10 per cent on Friday post the announcement of its subdued March quarter earnings. BSE Tech also lost 9 per cent during the week. Other sectors like capital goods and metals closed the week lower by 3-4 per cent. As always, at uncertain times the healthcare and FMCG scrips becomes investor favourites and consequently the two indices were the lone positives for the week.  

Among the individual stocks, Max India Insurance was the top gainer this week as its shares rallied by 10 per cent on the back of Japanese company Mitsui Sumitomo Insurance Company (MSI) buying 26 per cent of the stake from New York Life. Amongst other gainers were HUL, Financial Tech and Kotak Mahindra Bank, etc.

On the other hand, the top losers this week were the gas transportation companies as their business viability came under question after the country’s natural gas regulator imposed some stringent tariff cuts. IGL was the top loser as the company’s share lost 39 per cent of its value. Other prominent losers were Gujarat Gas and GSPL.

In conclusion, we expect the markets to remain volatile over the coming week. The Wholesale Price Inflation (WPI) numbers for March 2012 are due on Monday, April 16 and the RBI has its monetary policy meet scheduled for Tuesday, April 17. We believe that for the next week all eyes will be on these two factors as well as on the companies’ announcement of their March quarter results, which will further move the market sentiments. One should watch out for stocks like CRISIL, Goa Carbon, HCL Tech, ACC, IndusInd Bank, Cairn India, etc which are going to post their March 2012 quarter results. These stocks may see some price movement. Given the scenario, our advice to investors is to remain cautious.