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Investors to focus on Infosys
Infosys, which is also traded on the Nasdaq in the US, will release its quarterly results and give its forecast for the new fin-ancial year on Tuesday, before trading begins for the week.
- By Geetha Bhaskaran, Special to Gulf News
- Published: 00:14 April 13, 2008
Mumbai: Bellwether Infosys Technologies Ltd will set the tone for Indian shares in this holiday-shortened week, with expectations muted by worries about a recession in the US which provides more than half the revenue for Indian back-office and software services companies.
Infosys, which is also traded on the Nasdaq in the US, will release its quarterly results and give its forecast for the new fin-ancial year on Tuesday, before trading begins for the week.
The market is closed tomorrow and Friday for local holidays.
Most analysts expect Infosys, India's second-big-gest software firm after Tata Consultancy Services, to report about a 10 per cent rise in January-March profit from a year ago and about three per cent from the December quarter.
"The focus will be on the guidance," said equity trader Ankit Patel. "It will provide an insight into the US and will set the trend for the market."
Outsourcing
Citibank said it expected Infosys to forecast revenue growth of about 20 per cent in dollar terms for 2008-09. This will be sharply lower than the 35-35.2 per cent rise Infosys had forecast for 2007-08.
Traditionally, Infosys has been the trend-setter for the industry and the stock market.
It has consistently outperformed its own forecast in the past, but over the past year the growth in earnings have slumped from more than 50 per cent. Its shares had fallen 19 per cent in the March quarter, less than the 22 per cent drop in the sector index.
"Although a US recession will hurt software exporters, it is also true that US companies or governments will be forced to outsource more work to cut their costs and stay competitive," Patel said.
The negative factors were already in the price of Infosys, which closed at Rs1,422.45 last week, and the downside could be limited to five to eight per cent, he said.
"The frontline tech companies are expected to show a sequential revenue growth of five to eight per cent during the fourth quarter," brokerage Sharekhan said in a note, with a 1.7 per cent depreciation in the rupee helping earnings.
Wipro Ltd, the third-biggest software firm, is scheduled to release its results on Friday and the expectations are it would lag Infosys in growth rates as rising wages squeeze its margins.
Portfolio manager Vijay Kumar said he expected the market to remain under pressure even if Infosys beat market expectations becau-se of soaring inflation and worries about aggressive government moves to curb prices and money supply.
Annual inflation at end-March shot to 7.41 per cent, the highest since November 2004 and from 7.0 per cent a week earlier, driven by rising prices of commodities.
Meanwhile, India's foreign exchange reserves rose to a record $311.885 billion on Apr. 4, from $309.161 billion a week earlier, the central bank said in its weekly statistical supplement on Friday.
The central bank said foreign currency assets, expressed in dollar terms, included the effect of appreciation or depreciation of other currencies held in its reserves such as the euro, pound sterling and yen.
India's M3 money supply grew an annual 20.7 percent in the two weeks to March 28, slower than 21.0 per cent two weeks earlier, the central bank said in its weekly statistical supplement on Friday.
Cut in import duty
The government has slashed import duties on edible oils, curbed exports of rice, and arm-twisted steel and cement companies to lower prices.
But rising costs of raw materials and higher fuel prices are putting upward pressure on prices.
The RBI is scheduled to review monetary policy on April 29, and it is widely expected to tighten liquidity through a rise in the cash reserve ratio (CRR) and a possible increase in the short-term interest rate.
The CRR is the per centage of deposits that banks must keep with the RBI and it reduces the amount that banks can use to lend. It has been raised by 250 basis points in the 11 months to November last year and stands at 7.5 per cent.
The main interest rate has been kept unchanged at 7.75 per cent for the past one year.
The Sensex fell on the inflation data, but quickly rebounded after industrial output for February beat expectations.
It ended at 15,807.64, up three per cent on the week but off 22 per cent so far in 2008.
Factory output grew 8.6 per cent in February from a year earlier, compared with January's upwardly revised 5.8 per cent.
Kumar said Reliance Industries, which rose nearly 10 per cent last week to Rs2,550.05, its highest close since February 27, was a stock to be watched in the coming weeks.
High refining margins are expected to have boosted its earnings, while media reports quoting company sources have said Reliance was in talks with big oil majors to sell up to 10 per cent in a deep-water block off India's east coast.
The February factory data helped ease concerns about a slowing growth, but analysts said it would give the central bank elbow room to raise interest rates in its battle to contain inflation.
Goldman Sachs said it expected the RBI to allow the rupee to rise by 4 per cent in 2008-09 and forecast the central bank to raise its main lending rate by 50 basis points at the April 29 policy meeting.
The rupee closed little changed at 39.95/96 per dollar last week.
The writer is a journalist based in India.
Although a US recession will hurt software exporters, it is also true that US companies or governments will be forced to outsource more work to cut their costs and stay competitive."
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