Day Of The Week: Thursday – Infy, TCS and IIP

The biggest day of the week was Thursday since it had the best flow of news and events that got the investors on their toes. The result season kick-started this week with some of the major industry leaders sharing their June quarter results. And on Thursday, investors looked at the results of IT heavyweights Infosys and TCS with keen anticipation as well as the Index of Industrial Production (IIP) data for the month of May 2012 that was declared by the Ministry of Statistics and Programme Implementation (MOSPI). The week ended the broader Indices lower almost by 1.7 per cent.

Let us first look at what the IT majors had to offer. Infosys once again posted dismal numbers. The dollar revenue announced by Infosys for Q1FY12-13 stood at USD 1.752 billion, which is 1.07 per cent lower sequentially. Further, the management revised its FY13 growth guidance on the lower side. In dollar terms, the firm reduced the guidance for FY12-13 from the already sub-standard 8-10 per cent to 5 per cent. This led the stock to plunge by almost 9 per cent in a single trading session. On the other hand, TCS came out with a good set of numbers, beating its rival Infosys. The revenues increased to USD 2.728 billion for Q1FY12-13 from USD 2.64 billion for Q4FY11-12. The net profit too saw a sequential increase of 2.896 per cent.

Further, many other companies declared their June quarter numbers during the week. We had the results of HDFC, Cera Sanitaryware, CMC, TTK Prestige, Indusind Bank, etc. Private banking major HDFC Bank came out with its numbers today and these were in line with the street’s expectations. Its net interest income has increased by 22 per cent to Rs 3,484 crore while the net profit of the bank grew by 30.6 per cent to Rs 1,417 crore on a YoY basis. Its gross NPA improved by 7 basis points to 0.97 per cent while the net NPA stood at the same level of 0.2 per cent, which is one of the best in the industry.   

The IIP data for the month of May came in at 2.4 per cent, which was higher than the street expectation of around 1.7 per cent. One should recollect that the IIP date for April 2012 came in at a meagre 0.1 per cent. The cumulative growth for the period April - May stands at 0.8 per cent over the corresponding period of the previous year. Now the focus, including that of the RBI, will be on the WPI and CPI data, scheduled to be released next week.  

On the global front, the week started after the European Central Bank (ECB) had slashed its key rates in order to boost the economy. Also, stimulus steps were taken by the Chinese government last week in order to boost its economic growth. Despite the global central bank’s steps to revive global growth, most of the markets closed the week with deep red cuts. The U.S. markets closed lower with major indices like Nasdaq, S&P and Dow closing lower in the range of 2.4 to 4 per cent. One of the reasons behind this fall of the U.S. markets was that the Federal Reserve did not take any steps to boost growth.

The European markets also traded lower during the week with major indices like FTSE, CAC and DAX closing lower in the range of 1.5 to 3 per cent. As per media reports, the Italian bond yield surged while its stocks plunged after leading rating agency Moody’s downgraded the country’s government bond rating to BAA2 from A3 with a negative outlook.

The Asian markets ended the week lower after investors continued to be wary about the uncertain macro environment and took negative cues from the developed markets. Major Asian indices like Hang Seng, Nikkei and Shanghai closed lower in the negative zone, falling in the range of 1.7 to 3.6 per cent. China during the week came out with its key economic data. According to media reports, China’s economy has slowed down its growing pace in the second quarter and has posted the weakest rate of growth in more than three years, expanding by just 7.6 per cent on a YoY basis. The growth was almost in line with the market expectation but it highlighted issues faced by its export-dependent growth model. The slowdown in China has resulted in speculation among the world’s investors and traders about whether the Chinese government would take some steps to boost economic growth.

Among the individual stocks, Jaypee Infra closed higher by 7.2 per cent at Rs 58.80 and is one of the leading gainers this week. This was in the wake of media reports stating that the company’s Yamuna Expressway is set to open on July 17. Strides Arcolab closed the week higher by 4.32 per cent after the news that the company is foraying into the Canadian market which will further help it to grow at a faster rate. Other stocks like Castrol India, ING Vysya Bank and Manappuram Finance also closed higher by more than 4 per cent.

On the other hand, investors should note that BPCL showed a 50 per cent fall to Rs 385.50 this week, but this was actually after the company declared bonus in the ratio 1:1. Other stocks like Infosys and Wipro closed the week lower by almost 9 per cent after investors expected bleak outlook from them. Other stocks like Hindustan Zinc, Jindal Steel & Power, Hexaware and GMR Infra closed lower by more than 5 per cent.  

For the next week one may watch out for stocks like Castrol India, South Indian Bank, Axis Bank, Bajaj Auto, Dr Reddy’s Lab, Kotak Mahindra Bank, Asian Paints, Tata Coffee, etc which are going to announce their June quarter results. One may see volatility in the share prices of the above stocks on the back of their performance. 

In conclusion, we expect the market to remain volatile for the next week as we have a series of events lined up on the domestic front. The Wholesale Price Index (WPI) data is expected to be out on July 16 and the Consumer Price Index (CPI) on July 18. The RBI would be watching the inflation numbers to take the required steps during their monetary meet scheduled for July 31. The result season has already started and there would be stock-specific movement based on their June quarter numbers. Any news on the global front, especially from the U.S. and Europe, would further take the market in either direction. We advise investors to remain cautious and adopt a ‘wait and watch’ approach and take cues from all these major events.