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Infy Plays Spoilsport

Indian stock markets were massacred this week. The not-so-encouraging future earnings guidance from software biggie Infosys did the damage. While technology stocks felt the heat, select bank, PSU and healthcare stocks ruled firm.

A disappointing earnings forecast by Infosys brought stock markets to their knees. Although the software major met its profit target for the quarter, the company has revised its earnings forecast to 11-13 per cent for the next quarter as against market expectations of 18-20 per cent. Consequently, the BSE Sensex lost 5.4 per cent (170 points) over the week to close below the 3,000-mark on Friday. In the past eight months, this has been the highest weekly loss for the index. The S&P CNX Nifty too ended the week down 6.6 per cent (68 points). Interestingly, the BSE Mid-cap 200 Index fell only 1.15 per cent, clearly indicating that large-cap index stocks/technology stocks were the worst affected.

Initially, the market had received good support from FIIs, who turned net sellers towards the end of the week. On the other hand, for third consecutive week mutual funds remained net sellers. The trading volumes on both exchanges jumped by 25 per cent. This was largely on account of heavy selling in technology stocks. Despite the carnage, most healthcare, bank and PSU stocks held their ground, registering marginal gains this week.

Stock markets started the week with a 47-point gain on Monday on expectations that the war in Iraq was coming to a close. The following two days markets remained skeptical and continued to slide down, ahead of Infosys Q-4 results. But Thursday—the day Infosys declared its result—turned out to be a nightmare for the Indian stock markets. The BSE Sensex lost 3.4 per cent in a single day. The Infy scrip fell by 27 per cent and the BSE IT Index lost 20 per cent that day.

Infosys' net profits for Q-4 grew by 1.17 per cent (Rs 259 crore) over the previous quarter. Overall, in fiscal 2002-03, its net profits stood at Rs 957.93 crore—a rise of 18.6 per cent. In Q-4, Infy added 28 new clients as against 23 new clients in Q-3. However, a disappointing future guidance cast its ugly shadow over all this. Over the week, Infy lost 39 per cent of its market cap (Rs 11,144 crore). Hence, the company's weightage in the BSE Sensex has come down from around 11 per cent till last week to 7 per cent now.

The recent slide in technology stocks has seen many IT stocks—Infy, Satyam, Wipro, Aztech Software, Digital Globalsoft, HCL Technologies and Mascot Systems—hit a 52-week low. Over the week, the BSE IT Index lost 28 per cent.

Following in the footsteps of Infy, Mastek too registered dismal earnings growth in the quarter and revised its next quarter earnings downwards. As a result, the scrip was down 45 per cent this week. On the other hand, two-wheelers major Hero Honda reported an overall 25 per cent rise in its net profits for the fiscal despite a 2.35 per cent drop in its Q-4 net profits. The company has declared a 900 per cent dividend for its shareholders. Among the Sensex stocks, Hero Honda's share price gained the maximum (up 6.41 per cent) this week.

As the Gulf War II is nearing an end, stock markets should see some buying interest in the coming weeks. However, a lot will depend on the forthcoming corporate results and earnings guidance of other technology companies like Wipro and Satyam and non-IT companies. Also, PSU stocks will be in the limelight ahead of the expected meeting of the Cabinet Committee on Disinvestment on April 15.