Moneycontrol Pro picks of the week

Dear Readers,

Samvat 2075 is drawing to a close. The week is ending on a relatively flat to negative note over a week ago.

Investors were shaken up by news that Infosys’s top management has been accused of improper accounting practices and a whistleblower has submitted a letter to the US Securities and Exchange Commission (SEC) and India’s Securities and Exchange Board (SEBI) on this matter.

This is the second time that Infosys finds itself in the spotlight for corporate governance-related issues.

The state election results were the other major domestic event to keep a watch on. Investors get some comfort from the fact that the ruling party at the centre is able to notch up wins at the state level also.

This is also perceived as being good for the economy, as several initiatives taken by the centre are implemented by the state government. But the BJP’s showing in the elections was not as good as the exit polls or even the initial counting showed. It is however set to form the government in both states which should give some comfort to investors.

The telecom sector was in the news, although not for the right reasons. The government announced a massive bail-out package for MTNL and BSNL that will disappoint those wanting the government to exit from unprofitable businesses.

In an unrelated event, the Supreme Court ruling on the calculation of revenue for the purpose of revenue-sharing went against telecom operators and this is likely to result in massive outflows from the balance sheet of Airtel and Vodafone Idea.

The earnings season is in full swing and the pressure of a slowing economy is visible in the earnings of companies. While the tax cuts are providing some relief to those companies who are taking advantage of it, the pressure on revenues is only too visible.

All eyes are on the government and the Reserve Bank of India (RBI) to see how they are able to solve issues such as the shortfall in revenues and the problems engulfing financial sector entities.

Hopefully, the forthcoming Samvat will see many of these thorny issues getting resolved and the economy begins to hum smoothly again.

Happy Diwali!

Here are some of our key stories of the week:

Why whistleblower 2.0 is a body blow to Infosys

Infosys, once the poster boy of corporate governance in India, is at the receiving end for the second time in two years. As was the case in 2017, governance issues have been highlighted by a whistleblower. How the founders will react this time to the allegations remains to be seen. Read here to know what this means for the company and its shareholders.

The big themes investors need to watch in Samvat 2076

As Samvat 2075 draws to a close, the weather in Mumbai is a reminder of how this year has been full of surprises, several of them unpleasant. With just a few days left for Diwali, the rains are digging their heels in. Here, we highlight some of the important themes you should be tracking in the year ahead, to know how equities will perform. Read here.

What will drive the rebound in economic growth?

India’s economy is expected to slow down this fiscal but rebound next fiscal, according to the IMF. What will lead the recovery? Will it be higher investment growth, the result of the recent corporate tax cuts? The IMF’s database for its World Economic Outlook for October 2019 provides some clues. Read here to know more about them.

Six research ideas for a rewarding and safe investment journey in Samvat 2076

Our research team has crunched the numbers, weighed what company managements have said, analysed balance sheets and cash flows to hand pick select stocks that offer growth and earnings visibility at a reasonable valuation. Our research picks for Diwali should not only light up your portfolio but also protect it during times of trouble. Read here to know which ones.

 Early Q2 results flag continuing asset quality pressures at banks

For some time it seemed that banks had recognised all the stressed assets in their books and the focus will turn to resolution. Even the Reserve Bank of India in its June 2019 Financial Stability Report had predicted that the gross non-performing assets ratio of scheduled commercial banks gross nonperforming may decline from 9.3 percent in March 2019 to 9 percent by March 2020. But that theory has been shot to bits by the continuing NBFC crisis and a deepening economic slowdown. Asset quality red flags are popping up in the September-quarter earnings announcements of lenders. Read more.

 The impact of the Supreme Court judgment on the telecom sector

In a far-reaching judgment for the telecom sector, the Supreme Court has ruled in favour of the government on a 14-year old case, which will force the telecom companies to cough up enormous sums in dues and penalties. Read here to know about the judgement’s impact on telecom companies and the way ahead.

GuruSpeak: Scalping is all about waiting for the sweet spot before you strike

Any form of trading is all about patience and sticking to your strategy, but when it comes to scalping, which is taking quick entries and exits, these characteristics of trading work in fast forward. It is with years of experience that one gets it right. In our latest edition of GuruSpeak, an expert takes you through the mechanics of it. Read here to add to your expertise.

Bajaj Finance Q2 shows off its strengths, is it the right time to invest?

Bajaj Finance (BFL), one of the largest retail lending NBFCs, posted yet another quarter of solid performance with net profit rising by 63 percent year-on-year (YoY) on robust loan growth, better margins, controlled expenses and lower taxes in the second quarter of FY20. The business performance of Bajaj Finance continues to be strong despite macro headwinds such as slowing growth, tight liquidity and rising competition. It is precisely this ability to outperform even under such difficult conditions that makes the stock expensive. Click here to read our in-house research team’s view.

Whistleblowers open a Pandora’s box in Infosys

A few anonymous employees of Infosys have accused its CEO Salil Parekh and CFO Nilanjan Roy of unethical practices for many quarters. These developments are bound to impact performance, the company’s image with clients, and deal flow as well as employee morale when the sector is facing tumultuous times due to global macro uncertainties. Click here to read our in-house research team’s view on the stock.

Can ITC’s improving non-cigarettes business improve its valuations?

ITC’s shares have not been an investor favourite for a long time now, chiefly due to the cigarette business’s slowing growth. But its FMCG business has been supporting revenue growth. While ITC’s sales growth was in tandem with the sectoral trend, improved margins were a comfort. FMCG sales grew by 6.5 percent year-on-year (YoY) on a comparable basis, similar to what HUL achieved in Q2. Read here to know our research analyst’s view on the stock’s prospects.

While Muhurat trading will take place on Sunday, Monday will be a holiday for the stock markets. The earnings season will continue in full flow, giving investors additional information about how companies are faring. Investors will parse management commentary to see what lies ahead. Read more in Business in the week ahead in the Moneycontrol Pro app.