It is a mistake to think ‘overpriced and going down tomorrow’ are synonymous. Overpriced markets often keep going. - Howard Marks
The TCS second quarter numbers are unlikely to fire up the market or the IT sector. Not a bad thing for those who are looking to accumulate the shares. The bull argument for the IT sector is this: if you stop expecting the crazy growth rates of the pandemic era and make peace with the current rate of growth, then this is not a bad sector to be in. Deal wins by most companies are decent if not spectacular and this is among the few sectors where valuations appear reasonable.
Alembic Pharma
The shares jumped 5 percent to hit a 52-week high of Rs 827 on Wednesday. The stock has rallied around 76 percent from a near four-and-a-half-year low made in March when the company had said it would take an impairment charge of Rs 1,150 crore on three under-construction manufacturing plants in Gujarat.
No major improvement is seen in its earnings or profit margins recorded in the last three quarters. KR Choksey, one of the few bulls on the stock had rated the stock a 'buy' in May, with a price target of Rs 704, based on a forecast EPS of Rs 35.2 for FY25.
Motilal Oswal has a neutral rating on the stock, saying it was “awaiting better clarity on potential product approvals for the US market to provide meaningful improvement in profitability as well as return ratios”.
You see, one of the troubles with waiting for better clarity in the stock market is that the picture becomes clearer to everyone else as well, and the shares become expensive.
It is not clear what the bulls in Alembic are seeing right now, but they certainly seem to be willing to put the past behind. Domestic institutions’ holding has been steadily inching up over the last four quarter and now stands at 14.65 percent. Data from screener shows that the number of shareholders has fallen by around 10 percent to 89,522. This could be an indicator of stock moving out from weaker hands into stronger hands.
Valuations look expensive at this point (around 30 times trailing 12-month), but that is assuming that earnings growth will be anaemic in the coming quarters as well. If the numbers surprise, which is what the bulls seem to be betting on, then the narrative could change.
IT hiring
Never mind the TCS numbers, another way of figuring the outlook for IT services companies is the hiring picture, and things don’t look all that great there.
From an Emkay report, citing the Naukri’s JobSpeak index:
“IT-Software/Services hiring fell 8.8 percent month-on-month in (September), and was down 43.4 percent YoY. The hiring index for IT-Software/Services has now declined (on a YoY basis) in all nine months of this year, reflecting continued softness in demand and uncertainty in the overall environment. IT Job Index is currently down 49 percent from its peak levels in July 2022. BPO/ITes/CRM/Transcription hiring also reported a decline of 6.4 percent MoM, and it has now declined for the eighth consecutive month on a YoY basis. Weaker trends in IT-Software/Services are corroborated by lower attrition/muted hiring trends reported by IT companies in the last few quarters. Timelines for recovery in the IT sector hiring remain uncertain and depend on macros.”
Steel
The war between Israel and Hamas in Gaza has started to ring warning bells throughout supply chains for oil, steel, and various metals, reports Metal Miner. If prolonged, the conflict could adversely affect steel prices as well as many other commodities, the report said, adding that the war has raised concerns in India as well as among Turkish and Russian steel exporters.
Copper M&As
A flurry of copper mining deals are being lined up for the next six to 12 months, as producers seek to spread the soaring cost of new projects for the metal key to the energy transition, reports Reuters, quoting industry sources. The capital needed to develop new mines has shot up some 50 percent to between $3-4 billion on average in recent years, due to declining ore grades, stricter environmental requirements and rising labour costs.
China
China’s sovereign wealth fund snapped up shares in the nation’s Big Four lenders and said it plans to continue the purchases, a move apparently aimed at boosting the stocks, reports Bloomberg.
China’s consumer spending still isn’t growing as fast as it did before the pandemic, reports CNBC, quoting analysts. “Consumers have started to spend more money, but they still maintain a cautious attitude when it comes to how they are spending the money,” a UBS economist said.
The big picture
On the surface, the US job market appears to be strong. But a deeper dive into recent jobs data reflects a more sobering picture of the hiring market, reports WSJ. Many white-collar workers are still having a tough time finding jobs with better pay or perks. For one, 70 percent of the September job gains were in three sectors: government, healthcare, and hospitality and leisure, but the 21,000 jobs added in professional services such as architects, marketers, engineers and managers were half that added in September 2022.
Job skill
More than half of the CEOs who participated in a KPMG survey said they are spending more money on new technology than training current employees, reports CNBC. That means understanding how to use AI — on your own time — could set one apart in the job application pool. The average job posting involving generative AI skills offers a $138,232 salary, says a September report from job search platform Adzuna.
Meanwhile, 87 percent of C-suite executives are struggling to find candidates with AI skills strong enough to fill those roles, according to online education platform edX.
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