Nifty hits 4-month closing low as Infosys Q3 results disappoint

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 as IT bellwether Infosys kickstarted the corporate earnings season on a weak 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. Index heavyweights Reliance Industries (RIL) declined. Bank shares dropped on reports the Central Bureau of Investigation (CBI) has started inspecting documents of some state-run banks with regard to their lending to various telecom companies, as a part of the investigation into the telecom scandal.



Consumer durables, PSU OMCs and metal stocks also fell. Except the BSE Realty index, all the other sectoral indices on the BSE were in negative zone. The market breadth, which was strong earlier, reversed course later. The BSE 30-share Sensex was down 351.28 points or 1.8%, up close to 50 points from the day's low and off close to 340 points from the day's high. European stocks were mixed. US index futures were in the red. Most Asian stocks rose.

Closer home, intraday volatility was high. The Sensex came off lows soon after an initial slide. The market soon lost ground again. Volatility continued in morning trade as the key benchmark indices cut losses hitting fresh intraday lows. The market held negative zone in mid-morning trade as index heavyweight Infosys slumped. Volatility ruled the roost as the key benchmark indices weakened once again after erasing almost all the intraday losses to hit fresh intraday highs in early afternoon trade when data showed easing of food inflation. The market hit a fresh intraday low in afternoon trade as selling intensified in banking shares. The market extended losses amid volatility in mid-afternoon trade.

NSE's volatility index, India VIX, a gauge of traders' perception of near-term risks in the market based on options prices, edged up to 23.15% from Wednesday's (12 January 2011) close of 21.41%. 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.

Foreign institutional investors (FIIs) sold shares worth a net Rs 98.20 crore on Wednesday, 12 January 2011, substantially lower than an outflow of Rs 1123.60 crore on Tuesday, 11 January 2011. FII outflow in January 2011 totaled Rs 1757.30 crore (till 12 January 2011). FIIs had bought equities worth Rs 2049.60 crore in December 2010.

The food price index rose 16.91% and the fuel price index climbed 11.53% in the year to 1 January 2011, government data on Thursday showed. In the prior week, annual food and fuel inflation stood at 18.32% and 11.63%, respectively. The primary articles price index was up 17.58% in the latest week, compared with an annual rise of 20.20% a week earlier.

Finance Minister Pranab Mukherjee said on Thursday there is no need for unnecessary panic on inflation. As per media reports, the government may ban exports of wheat products as a part of a series of measures to tame spiralling food prices that have fuelled rapid inflation. The government is also expected to announce removal of essential commodities from the futures market after a cabinet meeting today, 13 January 2011.

European stocks were mixed on Thursday, 13 January 2011, ahead of interest-rate decisions in both the euro zone and the UK. The key benchmark indices in Germany and UK declined 0.07% and 0.48%, respectively. France's CAC 40 rose 0.3%. The ECB is expected to stand pat on rates. The Spanish government today sold 3 billion euros ($3.9 billion) in five-year bonds.

Asian stock markets rose on Thursday, 13 January 2011, fueled by a higher finish on Wall Street and a successful bond auction in Portugal on Wednesday that eased worries about Europe's debt crisis. The key benchmark indices in China, Hong Kong, Indonesia, Japan, Singapore and Taiwan rose by between 0.12% to 0.73%. But, South Korea's Seoul Composite declined 0.26% after a surprise rate hike from the central bank.

South Korea's central banks on Thursday raised interest rates by 25 basis points to contain inflationary pressures, as record food prices and volatile commodities prices threaten an escalation in inflation.

Japan's government said machinery orders fell for the third straight month in November and warned of emerging weakness. Japan's core private sector machinery orders fell 3% from the previous month to 723 billion yen ($8.7 billion).

Trading in US index futures indicated that the Dow could fall 6 points at the opening bell on Thursday, 13 January 2011.

Back home, government data released on Wednesday, 12 January 2011, showed industrial output rose at 2.7% in November 2010 as against a revised 11.30% growth in October 2010, as growth in the manufacturing output slowed sharply.

The government will announce inflation data for the month of December 2010 on Friday, 14 January 2011. A Capital Market poll of economists expects inflation based on wholesale prices to rise to 8.42% in December 2010 from 12-month low of 7.48% in November 2010. High food prices have reinforced expectations for interest rate hike by the central bank at a 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.

The trade deficit in December 2010 narrowed to $2.6 billion from $8.9 billion in November 2010, the lowest in the last three years, trade secretary Rahul Khullar said on Saturday, 8 January 2011.

The BSE 30-share Sensex was down 351.28 points or 1.8% to 19,182.82, its lowest closing level since 26 November 2011. The index shed 397.83 points at the day's low of 19,136.27 in late trade. The Sensex fell 11.72 points at the day's high of 19,522.38 in early afternoon trade.

The S&P CNX Nifty was down 111.35 points or 1.9% at 5,751.90, its lowest closing since 9 September 2010.

The BSE Mid-Cap index fell 0.8% and the BSE Small-Cap index fell 0.65%. Both these indices outperformed the Sensex.

Except the BSE Realty index, all the other sectoral indices on BSE declined. Banking sector index Bankex (down 3.53%), IT index (down 3.41%), and Consumer Durables index (down 2.7%), underperformed the Sensex. The BSE Metal index (down 1.23%), Oil & Gas index (down 1.1%), PSU index (down 1.01%), Healthcare index (down 0.7%), Capital Goods index (down 0.62%), Power index (down 0.54%), Auto index (down 0.3%), FMCG index (down 0.27%) and Realty index (up 0.54%), outperformed the Sensex.

The BSE clocked turnover of Rs 3554 crore, lower than Rs 3992.25 crore on Wednesday, 12 November 2011.

The market breadth, indicating the health of the market, was weak. On BSE, 1756 shares declined while 1122 shares advanced. A total of 101 shares remained unchanged. The breadth was strong earlier in the day.

Among 30 Sensex shares, 25 fell and rest rose.

Index heavyweight Reliance Industries (RIL) lost 1.49%. 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.

PSU OMCs tumbled as crude oil climbed to a 27-month high in Asian electronic trading on Thursday, 13 January 2011. HPCL, BPCL and India Oil Corporation declined by between 2.76% to 5.15%. Higher crude oil prices will increase under-recoveries of state-run oil firms on domestic sale of diesel, LPG and kerosene at controlled prices. The government has already freed pricing of petrol.

IT bellwether Infosys slumped 4.82% and was the top loser from the Sensex pack after 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 CEO 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.

Two other IT pivotals - TCS and Wipro edged lower in volatile trade after IT bellwether Infosys' dull Q4 March 2011 guidance. India's largest software company by sales TCS fell 1% to Rs 1124.20. The stock hit high of Rs 1155.65 and low of Rs 1118.40. The company unveils its Q3 December 2010 results on 17 January 2011. India's third largest IT exporter by sales Wipro declined 2.67% to Rs 455. The stock hit high of Rs 473.90 and low of Rs 449.05. The company announces its Q3 December 2010 results on 21 January 2011.

Consumer durables stocks fell on profit taking. Gitanjali Gems, Titan Industries, Blue Star and Videocon Industries shed by between 0.29% to 4.27%.

Bank shares dropped on reports the Central Bureau of Investigation (CBI) has started inspecting documents of some state-run banks with regard to their lending to various telecom companies as a part of the investigation into the telecom scandal. India's largest bank by net profit and branch network State Bank of India (SBI) fell 3.91%, with the stock snapping last two days' gains. The Supreme Court has raised concerns on how SBI lent Rs 2500 crore to Uninor on the basis of hypothecation of licences alone.

India's largest private sector bank by market capitalisation ICICI Bank shed 3.88%, with the stock snapping last two days' gains. India's second largest private sector bank by net profit HDFC Bank declined 2.9%.

Meanwhile, high food prices have reinforced expectations for interest rate hike by the central bank at a 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.

Realty stocks recovered on bargain hunting after recent sharp losses. DLF, Indiabulls Real Estate, Unitech and HDIL gained by between 0.61% to 1.53%.

Metal stocks reversed initial gains after POSCO, the world's No.3 steelmaker, warned on Thursday of sharply higher raw material costs due to the flooding in Australia, after its quarterly profit missed its own estimate by a wide margin and fell to its lowest level in six quarters. Sterlite Industries, Jindal Steel & Power, Hindalco Industries, Hindustan Zinc fell by between 0.22% to 3.22%.

Tata Steel fell 1.83%. As per reports the company's follow on public offer (FPO) will open for bidding on 19 January and close on 21 January 2011. The company's board after market hours on Tuesday, 11 January 2011 approved a follow-on public offer of 5.7 crore shares to reduce debt and expand Jamshedpur facility. The FPO will result in equity dilution of 6.31%.

Steel Authority of India declined 2.26% ahead of its Q3 result today.

Auto stocks declined on worries higher interest rates and hike in vehicle prices could den demand for vehicles. India's leading tractor maker by sales Mahindra & Mahindra fell 1.72%, reversing initial gains. India's largest car maker by sales Maruti Suzuki India declined 0.41%. India's top bike maker by sales Hero Honda Motors shed 2.25%. India's second largest motorcycle maker by sales Bajaj Auto was flat.

But, India's largest truck maker by sales Tata Motors rose 1.58%, extending Wednesday's 4.83% jump.

India's top engineering and construction firm by sales Larsen & Toubro fell 0.64%, reversing initial gains. The company is likely to come out with an initial public offer of its finance arm this quarter depending on market conditions.

Among other capital goods stocks, Bhel, BEML, Thermax and Praj Industries declined by between 0.48% to 5.73%.

Cals Refineries clocked highest volume of 2.59 crore shares on BSE. Suzlon Energy (1.01 crore shares), Assam Tea Company (99.69 lakh shares), Ispat Industries (95.11 lakh shares) and Birla Cotsyn (64.62 lakh shares) were the other volume toppers in that order.

State Bank of India clocked highest turnover of Rs 233.76 crore on BSE. ICICI Bank (Rs 154.47 crore), Infosys (Rs 141.24 crore), Tata Steel (Rs 112.68 crore) and Reliance Industries (Rs 100.54 crore) were the other turnover toppers in that order.