Infosys cheer guides market

Despite poor IIP numbers, markets enter festive mood.

After two quarters of disappointment, market bellwether Infosys Technologies turned on its charm on investors. In the euphoria that ensued, market players ignored poor industrial production (IIP) numbers and even a cut in Infosys’ full-year revenue outlook due to global uncertainties. The Bombay Stock Exchange Sensitive Index, or Sensex, rallied 2.55 per cent. The S&P Nifty rose 2.51 per cent.

Infosys met expectations with seven per cent growth in net profit and 8.2 per cent growth in revenues on a sequential basis as it added 45 clients. Weakness in the rupee was the catalyst that boosted margins for the company, said market players.

“Infosys results have sent a strong message to markets. Quarterly earnings will not be as bad as everyone was expecting. Even the Reliance Industries results on Friday will be closely watched,” said Kishor Ostwal, managing director of CNI Global Research.Markets also received support from benchmark stocks in Europe and China that rallied to their biggest gains in about a year. In Europe, it was expected Slovakia would soon give its long-awaited approval for the euro zone rescue fund.

Europe’s STOXX 50 index rose 1.4 per cent. The FTSE 100 index was up 0.35 per cent and the DAX rose 1.24 per cent. The Shanghai Composite rose 3.04 per cent. The Hang Seng was up 1.04 per cent and the Nikkei was down 0.4 per cent. In the US, the Dow Jones Industrial Index and S&P 500 futures rose nearly one per cent each.

But it was not all good news from Infosys, or in the economy.

The company lowered its revenue outlook in dollar terms for the fiscal year by about a percentage point to 17.1-19.1 per cent from 18-20 per cent projected earlier. The company’s management emphasised it was done due to unfavourable currency movements even though there were no material pricing or volume changes. However, it revised the rupee guidance upwards to Rs 33,501-34,088 crore from an earlier forecast of Rs 31,777-32,311 crore, with y-o-y growth of 21.8 per cent to 24 per cent.

Even the growth in IIP numbers was disappointing. IIP grew by a modest 4.1 per cent in August versus 4.5 per cent in the same period a year earlier. The growth was lower than the consensus estimate of 4.7-4.8 per cent.

Despite the negative news, the stock market continued its positive run on the back of Infosys and global news. Infosys gained 6.83 per cent, its sharpest rise in over a year, to close at Rs 2,680. Brokerage firm Religare affirmed its 12-month price target for Infosys at Rs 3,600, recommending a buy on the stock. Riding on its results, the BSE IT Index rose 5.21 per cent, double the benchmark indices. The BSE Teck index was up 3.83 per cent. Among other top IT stocks, TCS and Wipro rose 3.66 per cent and 2.71 per cent, respectively. State Bank of India was the other top gainer, up 6.07 per cent at Rs 1,872. The government has decided to provide around Rs 3,000 crore to the country's largest bank. There are expectations the bank will go for a rights issue in December. Other gainers included ICICI Bank, Sterlite Industries, Jindal Steel and Reliance Industries. These stocks rose 2.8-6 per cent.

Market experts said with the slowdown in IIP, there were expectations the Reserve Bank of India might change its hawkish stance. "The central bank could pause its aggressive monetary tightening policy. Banking stocks rose on expectations of a pause," said Amar Ambani, head of research at India Infoline.