Market corrects on profit booking

The market snapped a 5-week rally as weakness in global stocks triggered profit booking. Investors sentiment was also hurt by IT major Infosys revising downwards both earnings and revenue growth guidance for the year ending March 2013 (FY 2013) in dollar terms after reporting disappointing Q1 June 2012 results before trading hours on Thursday, 12 July 2012. The Sensex declined in four out of five trading sessions of the week that ended on Friday, 13 July 2012. The BSE Sensex declined 307.42 points or 1.75% to 17,213.70. The 50-unit S&P CNX Nifty fell 89.70 points or 1.69% to settle at 5227.25. The BSE Mid-Cap index fell 1.05% and the BSE Small Cap index fell 1.25%. Both these indices outperformed the Sensex. The Sensex has fallen 216.28 points or 1.24% in this month so far (till 13 July 2012). The Sensex has jumped 1,758.78 points or 11.38% in calendar 2012 so far (till 13 July 2012). Foreign institutional investors (FIIs) bought shares worth a net Rs 268.54 crore on Thursday, 12 July 2012, as per provisional figures released by the stock exchanges. FIIs have made substantial purchases of Indian stocks this month. FIIs bought shares worth a net Rs 3044.40 crore from the secondary equity markets during seven trading sessions from 3 July 2012 to 11 July 2012, as per data released by Securities & Exchange Board of India (Sebi). Prime Minister Dr. Manmohan Singh on Friday, 13 July 2012, approved the constitution of an expert committee on anti-avoidance tax proposal viz. the General Anti-Avoidance Rules (GAAR) to undertake stakeholder consultations and finalise the guidelines for GAAR. The committee would manage the consultation process and finalise the draft GAAR guidelines, the prime minister's office (PMO) said in a release. While postponing GAAR by one year to 2013 was a very welcome move, a widespread consultative process is necessary to generate a discussion on GAAR provisions so that there is an informed debate on how GAAR is going to operate, the release said. Department of Revenue undertook some consultations with stakeholders before finalising a first draft set of guidelines. This consultation was done by invitation. Subsequently, at PM's behest, Department of Revenue put the draft guidelines on the internet. This was widely welcomed as it lifted the veil on the GAAR guidelines, the release said. While these steps are good in themselves, a need was felt for far more widespread consultations, it said. There is a need to have greater clarity on many other fronts, the release said. The committee will invite comments from stakeholders and the general public on the draft GAAR guidelines which have been published by the government on its website. After receiving feedback, the committee will vet and rework the guidelines based on the feedback and publish the second draft of the GAAR guidelines for comments and consultations. This will be followed by the committee undertaking widespread consultations on the second draft GAAR guidelines. Once the consultation process is completed, the committee will finalise the GAAR guidelines and a roadmap for implementation and submit these to the government by 30 September 2012. Trading for the week began on a weak note. Key benchmark indices fell on Monday, 9 July 2012, with sentiment hit adversely by global growth worries and euro-zone debt woes. The BSE Sensex lost 129.14 points or 0.74% to Rs to settle at 17,391.98. The S&P CNX Nifty shed 41.80 points or 0.79% to Rs to settle at 5,275.15. Key benchmark indices surged on Tuesday, 10 July 2012, with investor sentiment boosted by data showing sustained buying of Indian stocks by foreign funds this month. Gains in European stocks also supported sentiment on the domestic bourses. The BSE Sensex jumped 226.37 points or 1.3% to Rs to settle at 17,618.35. The S&P CNX Nifty jumped 70.20 points or 1.33% to Rs to 5,345.35. Key benchmark indices edged lower in choppy trade on Wednesday, 11 July 2012, after the director-general of state-run India Meteorological Department (IMD) L.S. Rathore said El Nino, which is usually associated with lower rainfall, will likely emerge in August 2012. Weakness in European shares also hurt sentiment adversely on the domestic bourses. The BSE Sensex was down 129.21 points or 0.73% to Rs to 17,489.14. The S&P CNX Nifty lost 39.05 points or 0.73% to Rs to settle at 5,306.30. Key benchmark indices fell on Thursday, 12 July 2012, on weak global stocks and after weak earnings from IT major Infosys. The BSE Sensex lost 256.59 points or 1.47% to Rs to settle at 17,232.55. The S&P CNX Nifty shed 71.05 points or 1.34% to Rs to settle at 5,235.25. Key benchmark indices dropped to hit lowest closing level in over two weeks on Friday, 13 July 2012. The BSE Sensex was down 18.85 points or 0.11% to 17,213.70. The S&P CNX Nifty was down 8 points or 0.15% to 5,227.25. Among the 30 Sensex shares, 21 declined and the rest rose. India's second largest software services exporter by revenues, Infosys, topped the Sensex losers last week. The stock tumbled 8.84% to Rs 2227.80. The company announced before market hours on Thursday, 12 July 2012, that its consolidated net profit as per International Financial Reporting Standards (IFRS) declined 1.2% to Rs 2289 crore on 8.6% growth in revenue to Rs 9616 crore in Q1 June 2012 over Q4 March 2012. In dollar terms, the consolidated net profit declined 10.2% to $416 million on 1.1% decline in revenue to $1.752 billion in Q1 June 2012 over Q4 March 2012. The revenue in dollar terms fell short of Infosys' own guidance of revenue of between $1.758 billion to $1.776 billion for the quarter. Non-annualised earnings per American depository receipt (EPADS) matched the company's own projection of $0.73. In dollar terms, the company has revised downwards both earnings and revenue growth guidance for the year ending March 2013 (FY 2013). Infosys has forecast 5% growth in revenue to at least $7.343 billion for FY 2013, lower than its April guidance of 8% to 10% growth. The company has projected 1% growth in EPADS to at least $3.03 for FY 2013, lower than its April guidance of 4% to 5.7% growth. Thanks to deprecation of the rupee against the dollar, Infosys has revised upwards both earnings and revenue growth guidance in Indian currency for the year ending March 2013 (FY 2013). Infosys has forecast 19.7% growth in revenue to at least Rs 40364 crore for FY 2013, higher than its April guidance of 13.9% to 16% growth. The company has projected 14.4% growth in EPS to at least Rs 166.46 for FY 2013, higher that its April guidance of 9.1% to 10.9% growth. Infosys appears to have suspended quarterly guidance, as it did not issue guidance for Q2 September 2012. India's second largest software services exporter by revenues, Wipro, slipped 8.39% to Rs 359.20. The company announces Q1 results on 24 July 2012. India's largest software services exporter by revenues, TCS, gained 0.28% to Rs 1249.65. The company said after market hours on Thursday, 12 July 2012, its consolidated net profit as per Indian GAAP jumped 14.6% to Rs 3318 crore on 12.1% growth in revenue to Rs 14869 crore in Q1 June 2012 over Q4 March 2012. Operating profit rose 10.8% to Rs 4077 crore in Q1 June 2012 over Q4 March 2012. Consolidated net profit as per International Financial Reporting Standards (IFRS) rose 2.89% to $604 million on 3.02% growth in revenue to $2.728 billion in Q1 June 2012 over Q4 March 2012. TCS said growth in Q1 June 2012 was quite broad-based. Growth was seen across all industry segments, led by Retail, Telecom and BFSI, TCS said in a statement. There was balanced growth across IT and other service lines led by BPO, enterprise solutions & infrastructure services, TCS said. Major markets grew smartly led by UK, USA and Europe alongside growth markets like Latin America, TCS said. TCS added 29 new clients in Q1 June 2012. Metal stocks displayed weakness as prices of industrial commodities fell on global commodity markets. Jindal Steel & Power (down 5.43%, Tata Steel (down 4.87%), Sterlite Industries (down 3.86%) and Hindalco Industries (down 2.90%), edged lower. Tata Power Company slipped 4.59% to Rs 98.70. Global rating agency Standard & Poor's Ratings Services (S&P) has cut its outlook on the power generation major to negative from stable while affirming its 'BB-' long term corporate credit rating on the firm and its 'BB-' issue rating on the company's senior unsecured notes. S&P said it may lower the rating on Tata Power if the company is unable to secure waiver from its lenders on the breach of covenant. Another trigger for the rating downgrade could be increase in expenditure due to the Mundra ultra mega power (UMPP) project or otherwise resulting into substantial weakness in Tata Power's financial risk profile. S&P said it could upgrade the outlook on Tata Power to stable if Tata Power secures the necessary waiver and if the construction at the Mundra UMPP continues as planned and is within budget. S&P may also consider an upward revision in outlook in case if Tata Power faces no material deterioration in its business and sustainably maintains its financials risk profile such that its ratio of funds from operations to adjusted debt is 10% to 12%. Index heavyweight Reliance Industries (RIL) declined 2.12% to Rs 718.75. RIL has bought back 3.47 crore shares for about Rs 2484 crore till 10 July 2012 under its ongoing share buyback program. RIL has set maximum buyback price of Rs 870 per share. The company has set aside Rs 10440 crore for share buyback. The buyback program opened on 1 February 2012 and closes on 19 January 2013. Last month, RIL chairman Mukesh Ambani said at the company's Annual General Meeting in Mumbai that the company's buyback program represents a highly accretive use of cash by the company and it will supplement earnings growth from operations, for higher EPS (earnings per share), in the near future. Bharti Airtel (down 4.26%), Sun Pharmaceutical Industries (down 2.80%), Bajaj Auto (down 2.75%), Maruti Suzuki India (down 2.72%), Tata Motors (down 2.10%), Bhel (down 2.07%), State Bank of India (down 1.74%), HDFC (down 1.54%) and M&M (down 1.51%), edged lower from the Sensex pack. ONGC (up 2.19%), GAIL (India) (up 1.04%), Dr Reddy's Laboratories (up 1.03%), Coal India (up 0.75%), HDFC Bank (up 0.61%), ITC (up 0.38%), Cipla (up 0.3%) and Hero MotoCorp (up 0.11%), edged higher from the Sensex pack.