Apr 12, 2013 09:42 PM IST | Source:

Sensex drops 300 on Infosys shocker; IT shares struggle

A nasty earnings surprise from technology heavyweight Infosys felled the Sensex by 300 points on Friday, more than wiping out the gains in the last couple of sessions.

Moneycontrol Bureau

A nasty earnings surprise from technology heavyweight Infosys felled the Sensex by 300 points on Friday, more than wiping out the gains in the last couple of sessions.

Infosys shares fell 21 percent to close at Rs 2,295.45, the steepest single day fall in a decade, as a wave of earnings downgrades appear imminent after the tepid 6-10 percent revenue guidance for FY14.

The BSE Sensex closed at 18242.56, down 299.64 points over the previous close, and the Nifty closed at 5528.55, down 65.45 points. For the week, the indices were down around 1 percent. But for today’s bruising sell-off, indices would have been flat for the week. Midcap shares fared slightly better than large caps during the week.

The BSE IT index was the worst performer of the day, plunging 11 percent, as Infosys' disappointing numbers hurt sentiment for the sector as a whole.

"The dismal quarter again raises the question whether Infosys’ turnaround story is credible or not," said a note by brokerage house JP Morgan.

"Interestingly, Infosys has stopped giving EPS guidance. It might imply that the
company does not yet have a firm handle on its margin trajectory," the note added. JP Morgan has an overweight rating on the stock with a price target of Rs 3200.

Wipro was the other big loser in the IT space, shedding close to 5 percent. TCS and HCL Tech were impacted to a lesser extent, finishing around 2 percent lower, as market is hopeful of these companies putting up a better earnings performance.

"The management commentary from industry peers will be important to determine whether the pressure faced by Infosys is company-specific or an industry-wide phenomenon," said Dipen Shah of Kotak Securities. Infosys' numbers would further lower the expectations of a market which was anyway prepared for a muted earnings season.

Shares from the FMCG, power, banking and oil & gas sectors found takers, while those from the capital goods, realty and auto sectors struggled.

The gloom over Infosys numbers overshadowed a modest improvement in February industrial output data and March consumer inflation reading.

The index of industrial production for February rose 0.6 percent, against a CNBC-TV18 poll estimating a decline of 1.7 percent. The better-than-expected reading was driven by a 9.47 percent growth in the capital goods sector. But experts cautioned that it was too early to call for a credible recovery.
"We did a survey of a few corporates a couple of weeks back; it did not show up any trend of capex activity picking up among those corporates," said Samiran Chakrabarty of Standard Chartered in an interview to CNBC-TV18.

“It could be that it is the smaller corporates where there is some capex activity happening. I would want some confirmation for another couple of months before saying that there is a capex recovery on the way,” he said.

A view shared by Jyotinder Kaur of HDFC Bank.

"I would be circumspect before looking at it (the spike in capital goods) as a start of a trend," she said in an interview to CNBC-TV18.

"Our own capacity utilization indicators suggest that the capacity utilization levels actually fell in Q4. And what we could be having is the typical bunching up of data that we see that is typical of capital goods series," she said.

Consumer Price Index-based inflation eased slightly to 10.39 in March, compared to 10.91 percent in March, but the reading has been in double digits for four consecutive months now. A softening in inflation, both at the retail and wholesale levels, holds the key to RBI cutting interest rates.

Jaiprakash Associates, JSW Steel, Reliance Communications, Aurobindo Pharma and Canara Bank were among the prominent gainers, rising 3-5 percent. Next to Infosys, Wockhardt was the biggest loser, falling 10 percent. Dish TV and GMDC declined around 3 percent each.


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