Disappointing Infy results, rate-hike worries spook market

The market tumbled amid high volatility as disappointing Q3 results from IT bellwether Infosys Technologies added to investor gloom over the prospect of tighter monetary policy. The barometer index BSE Sensex fell below the psychological 19,000 mark and the 50-unit S&P CNX Nifty fell below 5,700 level.



The BSE Sensex fell 831.37 points or 4.22% to 18,860.44 in the week ended Friday, 14 January 2011. The 50-unit S&P CNX Nifty fell 250.05 points or 4.23% to 5,654.55. The BSE Mid-Cap index fell 3.31% and the BSE Small-Cap index fell 3.94%.

Food inflation in the world's second-fastest growing major economy eased marginally from a one-year peak in early January, but remained high enough to keep pressure on annual headline inflation in December and reinforce expectations of an interest rate rise this month. The wholesale price index (WPI) rose an annual 8.43% in December 2010 on higher food prices, government data showed on Friday, 14 January 2011. The annual reading for October 2010 was revised upwards to 9.12% from 8.58%.

The Reserve Bank of India (RBI) holds a quarterly monetary policy review on 25 January 2011. As per a poll by Capital Market, economists widely expect 25 basis points increase each in repo rate and reverse repo rate at January policy review. Higher interest rates will increase interest costs for corporates.

The Congress-led coalition government failed to announce major policy decisions on Thursday, 13 January 2011, to tackle soaring food prices after days of wrangling, taking only minor measures seen as unlikely to make a major impact. The government said in a statement it had contracted the import of 1,000 tonnes of onions and would step up purchases of essential commodities such as edible oils and lentils, and create a panel to recommend ways to fight inflation. The government will review import and export of all essential commodities on a regular basis and impose controls on exports and ease restrictions on imports, including tariff reduction where necessary, to improve domestic supplies, the statement added.

The current level of food inflation in India is not acceptable, Finance Minister Pranab Mukherjee said on Friday, 14 January 2011, after the headline inflation accelerated in December on higher food prices.

Trading for the week began on bearish note. The key benchmark indices tumbled to six-week closing lows on Monday, 10 January 2011, as a sell-off accelerated in the second half of the trading session on heightened fears of a rate hike by the central bank to cool inflation. Data showing substantial selling by foreign funds on Friday, 7 January 2011, and media reports that the proposed Goods and Service Tax (GST) will not be rolled out before April 2012 due to continued parliamentary disruption, also unnerved investors. The BSE 30-share Sensex was down 467.69 points or 2.38% to 19,224.12. The S&P CNX Nifty was down 141.75 points or 2.4% at 5,762.85.

The key benchmark indices edged lower in choppy trade on Tuesday, 11 January 2011, to hit six-week closing lows. The market sentiment was edgy due to recent heavy selling by foreign funds and on continued worries the central bank may hike interest rates to tame inflation. The BSE 30-share Sensex was down 27.78 points or 0.14% to 19,196.34. The S&P CNX Nifty was down 8.75 points or 0.15% at 5,754.10.

The key benchmark indices surged on Wednesday, 12 January 2011, snapping six-day slide, on firm world stocks. Bargain hunting emerged after a recent steep slide. The market shrugged off disappointing industrial production data for November 2010. The BSE 30-share Sensex was up 337.76 points or 1.76% to 19,534.10. The S&P CNX Nifty was up 109.15 points or 1.9% at 5,863.25.

The 50-unit S&P CNX Nifty hit four-month closing low and the barometer index BSE Sensex dropped to its lowest closing level in nearly seven weeks on Thursday, 13 January 2011 as IT bellwether Infosys kickstarted the corporate earnings season on a disappointing note. Infosys tumbled almost 5% after the company's Q3 December 2010 earnings lagged market expectations and as its earnings and revenue outlook for Q4 March 2011 disappointed investors. The BSE 30-share Sensex was down 351.28 points or 1.8% to 19,182.82. The S&P CNX Nifty was down 111.35 points or 1.9% at 5,751.90.

The key benchmark indices slumped to four-month lows on Friday, 14 January 2011, as European stocks fell and as US index futures edged lower after China's central bank raised lenders' reserve requirements by 50 basis points. Wild intraday swings were the order of the day. Increase in inflation in December 2010 reinforced fears of a rate hike by the Reserve Bank of India (RBI) at a policy review on 25 January 2011. The BSE 30-share Sensex fell 322.38 points or 1.68% to 18,860.44. The S&P CNX Nifty fell 97.35 points or 1.69% at 5,654.55.

Among the 30 Sensex shares, 27 declined and rest rose.

India's second largest software company by sales Infosys slumped 4.89% to Rs 3201.95. The company's consolidated net profit rose 2.5% to Rs 1,780 crore on 2.3% rise in revenues to Rs 7106 crore in Q3 December 2010 over Q2 September 2010 as per International Financial Reporting Standards.

The weaker economic recovery in developed markets coupled with high unemployment and risk of sovereign default could impact industry growth, said Infosys chief executive officer and Managing Director S. Gopalakrishnan at the time of the results announcement. Infosys is closely working with clients as they fine tune their strategies for the future, he said.

Infosys has forecast flat-to-slightly higher sequential growth in earnings in Q4 March 2011 in dollar terms. The company has given guidance of a 1% to 2.01% growth in revenue to $1.601 billion to $1.617 billion in Q4 March 2011 over Q3 December 2010.

The company has raised its dollar revenue and earning guidance for the year ending March 2011 (FY 2011) upwards. The company expects 14% to 14.5% growth in earnings per American depository share (ADS) at $2.60 to $2.61 in FY 2011 over FY 2010 (year ended March 2010). The company has forecast 25.7% to 26.1% growth in revenue at $6.04 billion to $6.06 billion in FY 2011 over FY 2010.

Uncertainties related to sustainability of the global economic recovery could create greater currency volatility in the near future, said Chief Financial Officer V. Balakrishnan. He said the company's focus will continue to be on high-quality growth -- balancing both revenue growth and margins.

In rupee terms, Infosys has forecast a between 0.28% decline to a 0.41% increase in EPS at between Rs 31.06 to Rs 31.28 in Q4 March 2011 over Q3 December 2010. The company expects a between 0.71% to 1.74% growth in revenue at between Rs 7157 crore to Rs 7230 crore in Q4 March 2011 over Q3 December 2010.

The company has raised its revenue and earning guidance in rupee terms for the year ending March 2011 (FY 2011) upwards. The company expects 9.7% to 9.9% growth in EPS at Rs 118.68 to Rs 118.90 in FY 2011 over FY 2010 (year ended March 2010). The company has forecast 20.5% to 20.8% growth in revenue at Rs 27408 crore to Rs 27481 in FY 2011 over FY 2010.

Banking pivotals declined on rate hike worries. India's second largest private sector bank by market capitalisation HDFC Bank tumbled 9.49% to Rs 2053. It was the biggest Sensex loser from the Sensex pack. India's largest commercial bank by branch network State Bank of India fell 3.75% to Rs 2502.25. India's largest private sector bank by market capitalisation ICICI Bank fell 3.57% to Rs 1010.55.

Infrastructure developer Jaiprakash Associates was the second biggest Sensex loser. The stock tumbled 7.87% to Rs 93.65.

India's largest engineering and construction company by revenue Larsen & Toubro was the third biggest Sensex loser. The stock lost 7.49% to Rs 1709.35 ahead of Q3 results. The company is due to report earnings on Monday, 17 January 2011.

India's largest dedicated mortgage lender by market capitalisation Housing Development Finance Corporation fell 6.20% at 641.55. Net profit jumped 32.72% to Rs 890.88 crore on 20.23% rise in total income to Rs 3321.04 crore in Q3 December 2010 over Q3 December 2009. The Q3 December 2010 results hit the market during trading hours on Friday, 14 January 2011.

Index heavyweight Reliance Industries (RIL) fell 5.99% to Rs 1001.15. As per recent reports, gas production from RIL's D6 block in Krishna-Godavari basin has dropped to 52-53 million metric standard cubic metres a day (mmscmd) from 60 mmscmd last October. RIL owns 90% in the D6 block, off the east coast, while Canada's Niko Resources holds the remainder.

India's largest steel maker by sales Tata Steel fell 5.93% at Rs 621.7. The company's board approved a follow-on public offer (FPO) to reduce debt and expand Jamshedpur facility. The company's board approved a FPO of 5.7 crore ordinary shares of face value Rs 10 each at a price to be determined through the book-building process. The issue includes 15 lakh ordinary shares reserved for eligible employees. The FPO will result in equity dilution of 6.31%.

India's second largest motorcycle maker by sales Bajaj Auto fell 5.32% to Rs 1246.90. The company's total vehicle sales declined 7.69% to 2.76 lakh units and motorcycle sales declined 8.3% to 2.43 lakh units in December 2010 over November 2010. Total vehicle sales rose 10% and motorcycle sales rose 11% in December 2010 over December 2009. Bajaj Auto announced the monthly sales data on 3 January 2011.

India's largest car maker by sales Maruti Suzuki India fell 5.08% to Rs 1275.3. Maruti Suzuki India's total vehicle sales rose 17% to 99,225 units in December 2010 over December 2009. Domestic sales rose 26% to 89,469 units in the same period. However, exports tumbled 29.30% to 9756 units in December 2010 over December 2009.

India's largest listed telecom company by sales Bharti Airtel rose 1.18% to Rs 342.7. It was the biggest Sensex gainer.

India's largest copper maker by sales Sterlite Industries rose 0.14% to Rs 176.35. It was the second biggest Sensex gainer.

India's largest tractor maker by sales Mahindra & Mahindra inched up 0.06% to Rs 739.05. It was the third biggest Sensex gainer.