Infosys jumps 5% ahead of Q1 results

The market surged last week as a hike in 2010 global growth forecast from the International Monetary Fund, revival of monsoon rains and expectations of strong Q1 June 2010 corporate earnings, boosted investor sentiments.



The International Monetary Fund (IMF) on Thursday, 8 July 2010, raised its world output forecast for 2010, citing solid growth in the first half, especially in Asia, but warned of significant downside risks flowing from Europe. The IMF revised its 2010 world gross domestic product forecast to 4.6%, up from a previous forecast in April of 4.2%. The 2011 GDP forecast was unchanged at 4.3%.

The IMF raised India's growth forecast for 2010 to 9.5%, stating that favourable financing conditions and robust corporate profits will accelerate economic expansion. The IMF expects India's economy to grow 8.5% in 2011.

The Dun & Bradstreet (D&B) Composite Business Optimism Index (BOI) for Q3 September 2010 rose to a two-year high of 150 from 132.1 in Q3 September 2009, recording an increase of almost 13.6% on a year-on-year (YoY) basis. The sustained improvement in the BOI, which is now at a two-year high, is reflective of the continuous strengthening of confidence amongst the corporates, D&B said.

Robust growth in industrial production, stabilising domestic consumption-demand, rapidly-growing investment demand coupled with increase in imports and exports seems to have supported growing business confidence, D&B said. Improvement in hiring intentions of the corporates, as reflected in a 10 quarter high resultant optimism for employees, is a positive development and augurs well for the future growth prospects of the economy, it said.

Rains have revived after weak monsoon last month. Rainfall deficit for the country as a whole narrowed down to 10% by Thursday, 8 July 2010 following a 2% above normal in the week ended 8 July 2010. Crop planting suffered last month as rainfall was 16% below normal.

The south west monsoon is important for India as about 60% of the country's farmlands are rain-fed and more than half of the workforce is employed in the agriculture sector. The south-west monsoon usually covers the entire country by mid-July. The weather office expects this year's monsoon rains to be at 102% of the long-period average. Good monsoon rains would help raise farm output, boost rural incomes and lower food inflation.

Meanwhile, the stock market regulator Sebi on Wednesday, 7 July 2010, relaxed the exposure margin requirement for stock derivatives, based on the feedback received from market participants. After trading hours on Wednesday, 7 July 2010, Sebi issued a circular saying that the exposure margin would be higher of 5% or 1.5 times the standard deviation of the notional value of the gross open position in single stock futures and gross short open position in stock options in a particular underlying.

The revised exposure margin requirement would be effective from 15 July 2010. The exposure margin requirement was similar prior October 2008, after which Sebi increased the exposure margin requirement to higher of 10%, or 1.5 times the standard deviation, to promote market safety and safeguard investor interest.

The BSE Sensex rose 372.59 points or 2.13% to 17,833.54 in the week ended 9 July 2010. The 50-unit S&P CNX Nifty rose 115.35 points or 2.2% to settle at 5,352.45.

The BSE Mid-Cap index rose 198.72 points or 2.79% at 7,317.15. The BSE Small-Cap index jumped 166.60 points or 1.83% to 9,270.58.

The week started on a lacklustre note due to a nationwide strike called by opposition parties to protest against the government's decision to raise fuel prices. The key benchmark indices edged marginally lower in lacklustre trade on Monday, 5 July 2010, with volumes hit by a nationwide strike called by opposition parties. The BSE 30-share Sensex fell 19.51 points or 0.11% at 17,441.44. The S&P CNX Nifty fell 1.20 points or 0.02% at 5,235.90.

The key benchmark indices surged on Tuesday, 6 July 2010, snapping last three days' losses as world stocks rose. Revival of monsoon rains in the past few days after weak rains last month, also underpinned sentiment. The BSE 30-share Sensex rose 173.04 points or 0.99% at 17,614.48. The S&P CNX Nifty rose 53.15 points or 1.02% at 5,289.05.

The key benchmark indices declined on Wednesday, 7 July 2010, as weak global stocks weighed on investor sentiment. The BSE 30-share Sensex fell 143.46 points or 0.81% at 17,471.03. The S&P CNX Nifty fell 47.95 points or 0.91% at 5,241.10.

The key benchmark indices surged on Thursday, 8 July 2010, as a hike in 2010 global growth forecast from the International Monetary Fund and firm global stocks boosted market sentiments. The BSE 30-share Sensex rose 180.70 points or 1.03% at 17,651.73. The S&P CNX Nifty rose 55.75 points or 1.06% at 5,296.85.

The market extended gains on Friday, 9 July 2010. The BSE 30-share Sensex rose 181.81 points or 1.03% at 17,833.54. The S&P CNX Nifty rose 55.60 points or 1.05% at 5352.45.

India's largest mobile services provider by sales, Bharti Airtel was biggest gainer last week. It rose 16.33% to Rs 308.10 last week. Telecom stocks jumped after a foreign brokerage raised its rating on the telecom sector, citing an improvement in the competitive environment. Tariffs had been stable in the last eight months and high cost for 3G mobile spectrum had crimped mobile operators' ability to go for further price war, the brokerage said.

India's largest tractor maker by sales, Mahindra & Mahindra jumped 6% to Rs 638.45. It was the second biggest gainer in the Sensex.

India's second largest software exporter by sales, Infosys Technologies moved up 5.24% to Rs 2871.90, ahead of its first earnings announcement on Tuesday, 13 July 2010. The stock hit record high of Rs 2,882 on Friday, 9 July 2010.

Investors' focus is on whether Infosys revises its annual guidance when it announces the Q1 June 2010 results on 13 July 2010. The IT bellwether will issue guidance for the second quarter ending September 2010 at the time of announcing its Q1 June 2010 results.

At the time of announcing Q4 and year ended March 2010 (FY 2010) results in early April 2010, Infosys projected a between 16% to 18% growth in consolidated revenue in dollar terms at between $5.57 billion to $5.67 billion for the year ending March 2011 (FY 2011). In rupee terms, Infosys has given guidance of a between 9% to 11% growth in consolidated revenue at between Rs 24796 crore to 25239 crore in FY 2011 over FY 2010.

Infosys expects a between a 1.2% decline to a growth of 2.9% in earnings per share (EPS) on consolidated basis at between Rs 106.82 to Rs 111.28 in FY 2011 over FY 2010. The IT bellwether has projected a between 5.3% to 9.6% growth in earnings perAmerican depository share (ADS) in FY 2011 over FY 2010.

The annual guidance was based rupee dollar exchange rate at 44.50.

Other major Sensex gainers last week were, DLF (up 4.75%), HDFC Bank (up 4.71%), State Bank of India (up 4.57%), Tata Steel (up 4.44%), Sterlite Industries (up 4.30%) and TCS (up 4.17%).

India's largest private sector bank by market capitalisation, ICICI Bank rose 3.74% to Rs 871.55. On Friday, 9 July 2010, the bank announced the pricing of an international bond offering of $500 million. The bank, last week, set its base rate for loans at 7.5% effective 1 July 2010 as part of a new rule to set minimum lending rates.

Cement maker, ACC was the biggest loser last week. It fell 2.73% to Rs 836.15 due to a cyclical fall in cement despatches, caused by the onset of monsoon.

India's largest FMCG company, Hindustan Unilever fell 2.51% to Rs 262.45. It was the second biggest Sensex loser.

Infrastructure developer and private sector power utility, Reliance Infrastructure fell 2.03% to Rs 1172.7. It was the third biggest Sensex loser.

Other major Sensex losers were, NTPC (down 2.03%), Jaiprakash Associates (down 1.53%), ONGC (down 0.83%), ITC (down 0.59%) and Hero Honda Motors (down 0.52%),

Index heavyweight Reliance Industries (RIL) fell 1.18% to Rs 1055.85. RIL and Reliance Natural Resources (RNRL) on 25 June 2010, entered into a new gas supply agreement, as directed by the Supreme Court. The Supreme Court had ordered the two companies to renegotiate the Gas Supply Master Agreement, which was signed between the Ambani brothers as part of the business demerger in 2005.

RIL also recently announced its seventh oil discovery in Cambay basin in Gujarat.