Indian Stock Markets With Joygopal Podder: Infosys Q2 net profit up 13 pct

Friday, October 15, 2010

Infosys Q2 net profit up 13 pct

MUMBAI (Reuters) - Infosys Technologies (INFOSYS.BO : 3137 -47.25), India's second-largest software services exporter, beat street estimates with a 13 percent rise in quarterly net profit helped by increased spending on IT projects by clients.

Bangalore-based Infosys said today net profit for its second quarter ended Sept. 30 rose to 17.4 billion rupees ($395 million) from 15.4 billion rupees a year ago.

Brokerages polled by Reuters had forecast profit of 17.17 billion rupees for Infosys, which counts Goldman Sachs, BT Group and BP among its main clients.

Shares in Infosys rose 2 percent to an all-time high after the results but turned negative later.

COMMENTARY:

AMBAREESH BALIGA, VICE-PRESIDENT, KARVY STOCK BROKING, MUMBAI
"It is better than expectations, but there's nothing to be enthused about it. Rupee will play a spoil sport going forward. We don't expect a major bump up in the stock price.
"Billing rates are not going up for the sector although there's good growth in volumes. Also there's pressure from overhead expenses."

PRAKASH DIWAN, HEAD OF INSTITUTIONAL BUSINESS AT NETWORTH STOCK BROKING, MUMBAI
"I would not read much into the fall in stock price. The stock was pricing in most near-term positives. It had run up a lot on expectations and such a reaction is expected.
"Also, Infosys has had a history of beating its own guidance and street estimates. So, people do tend to factor in that before results"

NIRAJ DEWAN, DIRECTOR, QUANTUM SECURITIES, NEW DELHI:
"On the margins side there was some pressure but that is more because of the rupee dollar movement. If the rupee dollar appreciation continues, then there could be some disappointment in the current quarter in terms of margins. Attrition would be another challenge, as the rate of attrition was higher in this quarter than the last."

"The stock is pressured because it has already run up and the guidance they are giving is not towards the higher end, it is towards the lower end of expectations."

ROHIT ANAND, RESEARCH ANALYST, PINC RESEARCH, MUMBAI:
"In dollar terms the growth is good. Expecting a good set of numbers from other IT companies as well, especially the large caps. Going ahead, there might be some problems of rupee appreciation, otherwise things look good."

TEJAS DOSHI, HEAD OF RESEARCH, SUSHIL FINANCE, MUMBAI
"Revenue growth looks pretty exciting. It looks like they have increased the bottom end of the earnings guidance and not the top end of the guidance. One of the reasons for that may be, the core business seems to have improved, but then the rupee dollar situation is not that conducive. So, may be on the bottom line we are not seeing much of a change."

VIKAS PERSHAD, CEO OF VEDA INVESTMENTS, CHICAGO
"I think, it does show that IT spending cycle is stronger than some believed. For the larger companies, given Infosys results, we may see similarly good results. I prefer Infosys over TCS and Wipro (WIPRO.NS : 479.5 -10.75) in the Indian IT space. All this said, we need to pay attention to the rupee appreciation."

SUBHASHINI GURUMURTHY, ANALYST, AMBIT CAPITAL, MUMBAI:
"The results are good and the guidance for the year also looks good. Hence, I have a buy on this stock."

"Infosys has already given two wage hikes to employees and hence, this aspect won't affect Infosys rest of the year."

GAJENDRA NAGPAL, CEO, UNICON FINANCIAL INTERMEDIARIES, NEW DELHI
"The results are better than market expectations. We are very pleased. They have raised the dollar revenue guidance. That means they are making inroads into new customers. I expect the market to respond positively."

K. K. MITAL, HEAD OF PORTFOLIO MANAGEMENT SERVICES, GLOBE CAPITAL, NEW DELHI
"The results are okay. The positives are the upward revision in full year guidance. After this, other IT companies are also expected to report in-line numbers. I think Infosys stock may rise post results, but profit booking is not ruled out."

Stock Market Terminology...

Stock market terms you must know (this article is for new entrants to the dizzy world of stocks and stock market trading):

As a stock market investor, you will regularly come across words like Sensex, Nifty, correction, rally et al...

Also, as a regular reader of business newspapers you will come across these and a host of other terms that describe the stock market activities.

You will also come across research reports from brokerage houses that talk of buying, selling and holding of a company's share.

Let us go through a few of these terms used in routine stock market parlance.

Sensex

It is an index that represents the direction of the companies that are traded on the Bombay Stock Exchange, BSE. The word Sensex comes from sensitive index.

The Sensex captures the increase or decrease in prices of stocks of companies that it comprises. A number represents this movement. Currently, all the 30 stocks that make up the Sensex have reached a value of 14,355 points.

These companies represent the myriad sectors of the Indian economy. A few of these companies and the sector they represent are: ACC (cement), Bajaj Auto, Tata Motors, Maruti (automobile), Infosys, Wipro, TCS (information technology), ONGC, Reliance (oil & gas), ITC, HUL (fast moving consumer goods) etc.

Each company has a weight assigned to it. Companies like Reliance, Infosys, and HLL have higher weightages compared to others like HDFC, Wipro, or a BHEL.

The increase or decrease in this index, the Sensex, is the effect of a corresponding increase or decrease in the stock market price of these 30 companies.

Nifty

It is the Sensex's counterpart on the National Stock Exchange, NSE.

The only difference between the two indices (the Sensex and Nifty) is that the Nifty comprises of 50 companies and hence is more broad-based than the Sensex.

Having said that one must remember that the Sensex is the benchmark that represents Indian equity markets globally.

The Nifty 50 or the S&P CNX Nifty as the index is officially called has all the 30 Sensex stocks.

The NSE Nifty functions exactly like (explained above) the BSE Sensex.

Bull

A particular kind of investor who purchases shares in the expectation that the market price of that company's share will increase.

S/he sells her/his stock at a higher price and pockets the profit. Simply put, the bulls buy at a lower price and sell at a higher price.

For instance, if a bull buys a company's share at Rs 100, s/he would prefer selling the same stock at Rs 120 or any price higher than Rs 100 to make a profit.

Usually, a bull buys first at a lower price and sells later at a price higher than her/his cost of purchase.

Bulls are happy when the markets (the Sensex and Nifty) move upwards. A falling market takes bulls into hibernation.

Bear

Bull's counterpart is the bear.

A bear sells stocks first that s/he owns or borrows from, say a friend, and then purchases the same quantity of shares at a lower price.

If a bear sells first, say 100 shares of Ranbaxy at Rs 400, and later purchases the same number of shares at Rs 375, then her/his profit is Rs 25 (400-375) per share.

This way s/he has got back the 100 shares of Ranbaxy and simultaneously made a profit of Rs 2500. The shares can later be returned to the bear's friend if s/he had borrowed the same from a friend.

There are bears in the market that sell shares first without actually owning them unlike in the above example. Such selling is called naked short selling or going short on a stock.
Bears are happy in a falling market.

While individual investors can engage in selling first and buying later (also referred to as short selling), mutual funds and foreign institutional investors are not allowed this luxury in India yet.

Squaring off

A process whereby investors/traders buy or sell shares and later reverse their trade to complete a transaction is called squaring off of a trade.

Indian equity markets remain open between 9:55 am and 3:30 pm normally (At times there are sun outages when satellites fail to link with ground infrastructure of the two exchanges (the servers where buy and sell orders are matched). During these times the trading period is extended till 4:15 pm to compensate for the time lost in between).

If you purchase 50 shares of say Infosys and sell them later before the market closes then you have squared off your buy position.

Similarly, if you sell 100 shares of Maruti and purchase them later then you have squared off your sell position.

Equity market rules in Indian allow investors/traders to engage in day trading.

Day trading is a mechanism whereby investors/traders can buy, say 100 shares of a company as soon as the BSE, NSE opens (the working hours are 9:55 am to 3:30 pm in normal times) and sell the same amount of shares later (bulls) before the two stock exchanges close. However, a stock bought on the BSE cannot be sold on the NSE and vice-versa.

Similarly investors/traders can also sell first and buy later (bears) during the course of the day to square off their sell positions.

Rally

The word suggests the gain made by the Sensex or Nifty during the course of the day. If such gains are made on a regular basis then market participants like investors, brokers etc call it as a market rally.

If the Sensex moves from 14,000 points to 15,000 points in a span of say 14 or for that matter 20 trading sessions (the stock markets remain closed on Saturdays, Sundays and other bank holidays) then the phenomenon is referred to as a rally.

Bulls are always said to be active during a market rally.

Crash

As the word suggests, crash refers to a sudden and steep fall in the value of Sensex and Nifty.

Bears are said to be active and happy during the market crash as their style of trading (sell first and buy later) helps them make good money during a crash.

Correction

A correction (or a measured fall) in the Sensex and Nifty takes place when these indices rise for a few days and then retrace or shave off some of these gains.

Say if the markets rally from 13,000 to 14,000 points in 10 days and the again fall to 13,700 points in the next five-six days then this action is termed as a market correction.

It is like a woman/man resting for some time after running a long distance race. Like human beings the market too needs to take rest after a smart rally.

Market experts consider such corrections healthy because during this period the ownership of shares moves from weak hands (short-term investors) to strong hands (long-term investors). Corrections are generally considered as signs of strength after which the markets (the Sensex and Nifty) gets once again poised for a further rally.

Bonus shares

These are the free shares that a listed company gives its shareholders.

A bonus is declared after a discussion amongst the board members that make up the management of a company.
A bonus issue is looked upon as a way of rewarding shareholders.

For instance, let us take a company A that has made a profit of Rs 100 crore in the financial year 2007 (April 1, 2006 to March 31, 2007).

Out of this amount the company may need Rs 50 crore for say buying machinery or constructing a new warehouse. And the remaining Rs 50 crore the company puts into its reserve pool or idle cash that the company has no plans to spend.
It can then issue bonus shares out of these Rs 50 crore.

When a company declares a bonus issue it converts this idle cash into shares that are then distributed amongst its shareholders. This process is called capitalising of reserves.

A bonus is usually declared as a ratio. A bonus issue in the ratio of 1:1 means you will get one free share for every one share of the company you own.

A 2:1 bonus issue (or two for every one held) means you will get two free shares of a company for every one that you own. Similarly, a 5:1 bonus issue will give you five free shares for every one share that you own.

Dividend

It is again a way of rewarding a company's shareholders. A dividend is generally issued as a percentage of the face value of a share. Face value is the nominal price of a company's share.

A share can have different face values like Re 1, Rs 2, Rs 5, Rs 10 or Rs 100. An 80% dividend on a share of face value Rs 2 (Rs 1.6) will always be less than a dividend of 20% declared on share of face value Rs 10 (Rs 4).

Like bonus shares, dividend amount also comes from a company's free cash reserves.

Book closure date

This is the date on which a company closes its books for business after it announces a bonus or dividend. The company's registrar keeps a track of who owns how many shares of that particular company.

Any investor having shares in his/her demat account before this date becomes eligible for the bonus issue or the dividend declared.

Say a company A announces a 1:1 bonus issue and the book closure date is February 28, 2007. If you don't own this company's share and want to avail of the bonus offer then you must not only buy this share before February 28 but also make sure that the number of shares purchased by you are transferred to your account from the seller before this date.

If the ownership of shares is reflected in your account after February 28 then you will not get any bonus shares. The same is also true for dividend announcements.

This just sums up a few (but regularly applyed) terms used by stock market participants.