TCS jumps after strong Q2 results; Wipro slumps

The key benchmark indices edged lower amid high volatility, tracking weak European stocks and lower US index futures, as caution prevailed ahead of G-20 meet. Volatility was high as traders rolled over positions in the derivatives segment from the near-month October 2010 series to November 2010 series ahead of the expiry of the October 2010 contracts next Thursday, 28 October 2010. The BSE 30-share Sensex was down 94.72 points or 0.47% off close to 185 points from the day's high and up close to 80 points from the day's low.



Inflows into secondary equity markets could be hit in the immediate short term due to diversion of funds to the mega Rs 15000-crore Coal India initial public offer (IPO), which was concluded on Thursday, 21 October 2010. The issue was subscribed more than 15 times. Pressure on fund outflows will ease in late October 2010 or early November 2010 as Coal India begins to refund excess subscriptions received towards the IPO.

TCS hit record high after reporting forecast-beating Q2 result. But, Wipro slumped after reporting Q2 results that came in below market expectations. Shares of IT bellwether Infosys gained. Index heavyweight Reliance Industries (RIL) edged higher in volatile trade. The market breadth was negative, in contrast with a strong breadth earlier in the day. High beta metal and realty stocks fell. FMCG stocks also declined.

Intraday volatility was high. The market pared gains, soon after a firm start. The key benchmark indices regained positive zone after slipping into the red in morning trade. Stocks moved in a narrow range in mid-morning trade. The market once again pared gains in early afternoon trade. The market slipped to the day's low in afternoon trade as European stocks declined in early trade. The market extended losses to hit fresh intraday low in mid-afternoon trade. Stocks came off in volatile trade later.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, was down 2.61% at 21.61. The index had lost 6.76% to 22.19 on Thursday, 21 October 2010. The index had risen 2.45% to 23.80 on Wednesday, 20 October 2010. The index had risen 3.94% to 23.23 on Tuesday, 19 October 2010. The index had lost 1.32% to 22.35 on Monday, 18 October 2010. India VIX is calculated based on the S&P CNX Nifty options prices. India VIX is a measure of the market's expectation of volatility over the next 30 calendar days.

European stocks fell on Friday led by banks, mining and oil sectors, as more key companies reported results. The key benchmark indices in UK, Germany and France were down by between 0.04% to 0.51%.

The German Ifo Institute's business climate index rose to 107.6 in October, according to news reports. The indicator was expected to slip to 106.4 from 106.8 in September.

Asian stock markets were mostly higher Friday after a slew of better-than-expected US earnings but gains were tempered as currency tensions overshadowed a summit of major economies. The key benchmark indices in Indonesia, Singapore, Japan, South Korea and Taiwan rose by between 0.27% to 1.21%. But, the key benchmark indices in China and Hong Kong fell by between 0.28% to 0.56%.

In a letter to his G-20 counterparts, US Treasury Secretary Timothy Geithner said countries shouldn't use competitive exchange-rate policies and that exchange rates should reflect economies. G-20 members should "commit to refrain from exchange-rate policies designed to achieve competitive advantage by either weakening their currency or preventing appreciation of an undervalued currency," Geithner said. He also recommended that G-20 members aim to keep current-account balances within a set level of gross domestic product.

Japanese Finance Minister Yoshihiko Noda told reporters Friday that Japan would reconfirm at the G-20 that exchange rates should reflect countries' economies. Noda called the US proposal of targeting reductions in current-account imbalances unrealistic.

India's Finance Minister Pranab Mukherjee said on Friday that agreement on managing currencies and adopting current account targets among group of 20 nations remain elusive. "I'm not sure whether this meeting can arrive at an agreement on this issue. It is difficult at this point in time, but we are still trying to negotiate," Mukherjee told reporters when asked about the status talks on currencies and current account targeting by G20 central bank and finance chiefs in South Korea.

Trading in US index futures indicated that the Dow could fall 4 points at the opening bell on Friday, 22 October 2010. US index futures reversed initial gains. US stocks rose on Thursday, 21 October 2010, supported by better-than-expected earnings results from McDonald's Corp. and insurer Travelers Cos Inc.

New US claims for jobless benefits fell more than expected last week, but not enough to suggest much improvement in the distressed labor market. Other data on Thursday showed a modest rise in a key gauge of future US economic activity last month and small growth in factory activity in the country's Mid-Atlantic region.

Closer home, investors made a beeline for Coal India shares as the initial public offer (IPO) of the state-run coal giant was subscribed 15.28 times. Foreign institutional investors (FIIs) put in bids for a staggering 493.38 crore shares, compared with 28.42 crore shares reserved for the qualified institutional bidders category as a whole. Bidding for the Coal India IPO by the qualified institutional bidders (QIBs) ended on Wednesday, 20 October 2010.

Bidding for the Coal India IPO by non-institutional investors, which mainly consists of high networth individuals and corporates, and retail investors ended on Thursday, 21 October 2010. The government has raised about Rs 15,000 crore from divestment of 10% stake in Coal India

Bond yields rose, extending recent gains. The yield on the most traded 8.13% 2022 bond was hovering at 8.10%, compared with Thursday's (21 October 2010) close of 8.09%. The yield on benchmark ten-year bonds was hovering at 8.15%, compared with Wednesday's (20 October 2010) close of 8.13%. The Reserve Bank of India next reviews monetary policy on 2 November 2010.

The food price index rose 15.53% while the fuel price index climbed 11.14% in the year to 9 October 2010 government data on Thursday showed. In the prior week, annual food and fuel inflation stood at 16.37% and 11.14%, respectively. The primary articles price index was up 18.05% in the latest week compared with an annual rise of 18.54% a week earlier.

Investors are keenly watching Q2 September 2010. The initial batch of Q2 results announced so far have been good with the combined net profit of 297 companies rising 24.6% on 19.5% rise in sales in the quarter ended September 2010 over the quarter ended September 2009.

Higher volumes and price hike will aid earnings growth of most auto firms in Q2 September 2010 though analysts will closely eye operating profit margins and outlook on margins in the face of rising metal prices. Banks are seen reporting decent-to-strong earnings growth on the back of pick-up in credit offtake. Manufacturers of base metals are also seen reporting strong Q2 results on the back of higher metal prices. Increase in product prices will offset higher input costs for consumer staples firms in Q2 September 2010. But, cement firms will report dismal results due to a sharp fall in cement prices during the monsoon season.

Market men are worried that a strong equity issuance pipeline over the next six months will soak liquidity from the secondary equity markets. Indian companies are estimated to raise about Rs 80000 crore from equity and debt issue over the next three to six months. State-run Power Grid Corp, Steel Authority of India and Indian Oil Corp are some of the companies that are planning large share sales in coming months.

Foreign funds have made heavy purchases of Indian equities this year. Net equity inflow in 2010 now stands at a record $24.17 billion, above last year's $17.45 billion, as per data from the Securities & Exchange Board of India (Sebi). The Sebi data includes FII inflow through primary and secondary market route.

A sizable chuck of FII inflow this year is from India-focused exchange traded funds as well as long-only funds.

Global emerging-market equity funds drew record inflows in the third week of October 2010 as investors sought growth in developing nations and the dollar weakened, according to global fund tracker EPFR Global. The funds took in $3.8 billion in the week ending 20 October 2010. Year-to-date inflows to global emerging-market equity funds exceed the record $44.2 billion for the whole of 2009.

Asia ex-Japan, Latin America and EMEA equity funds posted inflows ranging from $327 million to $981 million in the week ending 20 October 2010. Dedicated BRIC (Brazil, Russia, India and China) equity funds had their best week since February 2010, but were again eclipsed by Frontier equity funds, which pulled in $150 million, a 145-week high. Turkey equity funds saw inflows for the eighth week.

Prime Minister's Economic Advisory Council C. Rangarajan said in a newspaper interview that the time has not yet come for India to check surging capital inflows. "Larger capital inflows are needed to finance the current account deficit. So far, the capital inflows are not causing a distortion," the report quoted Rangarajan as saying.

He said India's current account deficit could be more than 3% of its gross domestic product by the end of the current financial year to end-March 2011, and the economy could afford to absorb more capital flows into reserves, the paper reported. India's current account deficit was nearly 3% of GDP at a record $13.7 billion in June 2010.

On Thursday, 21 October 2010, Planning Commission deputy chairman Montek Singh Ahluwalia said current capital flows were not destabilising so far, though the Reserve Bank of India would have to look at flow of funds for taking action in coming days.

The BSE 30-share Sensex was down 94.72 points or 0.47% to 20,165.86. The Sensex rose 91.16 points at the day's high of 20,351.74 in early trade. The index fell 171.91 points at the day's low of 20,088.67 in mid-afternoon trade.

The S&P CNX Nifty was down 35.45 points or 0.58% to 6,066.05.

The market breadth, indicating the health of the market was negative, in contrast with a strong breadth earlier in the day. On BSE, 1632 shares declined while 1403 shares rose. A total of 81 shares remained unchanged.

Among the 30-share Sensex pack, 22 declined while the rest gained.

BSE clocked turnover of Rs 5833 crore, higher than Rs 4822.09 crore on Thursday, 21 October 2010.

Index heavyweight Reliance Industries (RIL) rose 0.2% at Rs 1081.45. The stock hit high of Rs 1092.85 and low of Rs 1074.25. As per reports, RIL may actively bid for oil and gas exploration blocks, including nine new areas, being auctioned by the Government. Out of 34 blocks being offered under NELP-IX, 19 blocks are new areas -- seven are in deep sea, two in shallow waters and ten onland blocks. The rest 15 (one in deep water, five in shallow water and nine onland blocks) are recycled blocks.

Cigarette maker ITC fell 1.83% on reports the company is facing labour unrest at its unit at Haridwar that makes consumer care products and food items. The strike is against a decision of suspension of an employee on disciplinary grounds. The strike, which started on Monday, 18 October 2010, has hampered production. Management and the workers on strike are set to meet on Saturday, 23 October 2010, to resolve the issue, reports suggest.

The company has undertaken expansion at the unit. The Uttarakhand government has allotted land to ITC to expand the facility, reports suggest.

Among other FMCG stocks, Dabur India, United Spirits, Marico, Hindustan Unilever and Britannia Industries fell by between 0.14% to 1.72%.

Realty stocks fell on rate hike worries. Indiabulls Real Estate, Ackruti City, DLF, Unitech and HDIL fell by between 0.02% to 3.15%.

Metal stocks fell as the LMEX, a gauge of six metals traded on the London Metal Exchange, fell 0.37% on Thursday, 21 October 2010. Tata Steel, Sterlite Industries, Steel Authority of India, Sesa Goa, Hindalco Industries, Hindustan Zinc, Jindal Steel & Power, JSW Steel fell by between 0.05% to 2.58%.

India's largest IT exporter by sales Tata Consultancy Services (TCS) jumped 5.72% to Rs 1040.10, after striking a record high of Rs 1049.90 in intra-day trade today, following announcement of forecast beating Q2 financials. It was the top gainer from the Sensex pack.

TCS after trading hours on Thursday, 21 October 2010, reported a 14.22% rise in consolidated net profit as per US accounting standards to Rs 2106.50 crore on 13.01% growth in total revenue to Rs 9286.40 crore in Q2 September 2010 over Q1 June 2010.

India's third largest IT exporter by sales Wipro lost 4.54% to Rs 448.40 and was the top loser from the Sensex pack as Q2 results fell short of market expectations. Consolidated net profit as per International Financial Reporting Standards rose 9.75% to Rs 1284.90 crore on 11.7% growth in revenue to Rs 7730.50 crore in Q2 September 2010 over Q2 September 2009. The results hit the market before trading hours today, 22 October 2010.

Wipro expects 3.5% to 5.5% growth in revenue from our IT services business at between $1.31 to $1.34 billion in Q3 December 2010 over Q2 September 2010. Commenting on the second quarter results, Wipro Chairman Azim Premji said there was a strong momentum in demand as customers tried to catch up with the under-investment in IT in the previous years. Wipro continues to enhance investment in transformational capabilities, client partners and domain solutions, he said. While the macro-economic environment continues to remain uncertain, there is higher degree of confidence at the micro level, Premji said.

Commenting on the second quarter results, Wipro's executive director & chief financial officer Suresh Senapaty said there was a strong volume growth of 6.6% driven by higher offshore mix. The operating margins for IT services business declined during the quarter due to the impact of employee progressions, restricted stock units grants and lower foreign exchange realizations, he added.

India's second largest IT exporter by sales Infosys rose 0.66% to Rs 3053.25 after oscillating between Rs 3084-3015.

Bank stocks rose on good Q2 results/expectations of strong Q2 results where results are yet to be announced. India's largest private sector bank by net profit ICICI Bank rose 0.23%, with the stock gaining for the second straight day.

India's largest bank by net profit and branch network State Bank of India rose 0.15%, extending Thursday's gains of 3.29%. The bank has revised the Benchmark Prime Lending Rate upwards by 25 basis points (bsp) from 12.25% per annum (p.a.) to 12.50% p.a. effective from 21 October 2010. The bank has also raised base rate by 10 bps from 7.50% p.a. to 7.60% p.a. effective from October 21, 2010.

India's second largest private sector bank by net profit HDFC Bank fell 1.71%. The bank's net profit rose 32.68% to Rs 912.14 crore on 14.37% rise in total income to Rs 5770.70 crore in Q2 September 2010 over Q2 September 2009. The private sector bank announced the results after trading hours on Tuesday, 19 October 2010.

ACC rose 0.16%, reversing initial losses. Consolidated net profit fell 79.22% to Rs 86.31 crore on 15.3% decline in sales turnover to Rs 1759.18 crore in Q3 September 2010 over Q3 September 2009. The result hit the market during trading hours on Thursday.

Ambuja Cements declined 2.15% after net profit plunged 52.2% to Rs 152 crore on 2.9% decline in net sales to Rs 1564 crore in Q3 September 2010 over Q3 September 2009.

Auto stocks reversed initial gains. Bajaj Auto, Tata Motors, M&M and Maruti Suzuki India fell by between 0.25% to 1.66%.

Biocon advanced 0.28% after consolidated net profit rose 20% to Rs 89 crore on 16% growth in total income to Rs 688 crore in Q2 September 2010 over Q2 September 2009.

Shares of some food processing firms rose. KRBL, Kohinoor Foods and LT Foods rose by between 3.32% to 8.55%.

Some consumer durables stocks rose on expectations of healthy sales in ongoing festive season that lasts till Diwali early next month. Videocon Industries, Lloyd Electric, Gitanjali Gems and Rajesh Exports rose by between 0.13% to 3%.

Telecom stocks were mixed. Idea Cellular and Reliance Communications rose by between 0.51% to 1.25%. But, Bharti Airtel fell 1.2%.

Cals Refineries clocked the highest volume of 7.81 crore shares on BSE. Pipavav Shipyard (3.83 crore shares), Shree Ashtavinayak Cine Vision (1.59 crore shares) and Tusli Extrusions (1.1 crore shares) were the other volume toppers in that order.

HDIL clocked the highest turnover of Rs 424.07 crore on BSE. Pipavav Shipyard (Rs 355.42 crore), Raymond (Rs 117.97 crore), M&M Financial (Rs 114.77 crore) and TCS (Rs 106.34 crore) were the other turnover toppers in that order.