Few choices for investors in Samvat 2072(Hindu year beginning Diwali);Equity least preferred

                           Dalal Street lit up for Diwali

For the  Indian stock market , the Hindu calendar Samvat is a landmark event . The new year Samvat 2072 begins today as the country celebrates Diwali , the most important festival for the Hindus . For the business, trade and industry it is an auspicious day as they begin the new year with hope for prosperity , worshipping the Goddess Lakshmi seeking her blessings.

As the economy hopes for better year ahead, on  review, the Samvat 2071 has been rather disappointing with the benchmark losing the most in the last four years , after 2011 when it had nosedived by 18 per cent. Surely, investors lost money in the previous Samvat . So, it is no surprise for the diehard bulls telling investors to stay invested and pump in more money in equity as an asset class. They have been giving examples of how people made a rich bounty of 49 per cent in Maruti Suzuki, 28.7 per cent in Lupin, 17.6 per cent in HDFC Bank and 16.3 per cent in Infosys in the last 12 months.  

They conveniently remain silent on the fact that for every Maruti Suzuki, there is a Vedanta where investors lost a huge 63.7 per cent. For every Lupin, there is a Tata Steel where poor investors lost 52.5 per cent. For every HDFC Bank , there is a Hindalco where the losses were  as much as 46.8 per cent  and likewise there was a painful wealth erosion of over 41 per cent in GAIL and ONGC, as per the data compiled by the Business Standard newspaper.

It was such an annoying thing to hear Chief Investment Officer of a leading asset management firm on CNBC TV 18  say that the investors should not bother what to buy or whether to buy or not, they should simply ask: How much to buy and when to buy, painting such a rosy scenario.

Within 20 minutes, the same guy was speaking on another TV channel . Here he was very particular and said “no, no” as long as investors know what stocks they are buying , there is no problem, they will make money.  At one place, he says investors can go and just buy anything and then he goes to another channel and says, no quality of the stock matters: God save asset under his management. No wonder, the Indian Mutual Funds, supposed to be managed by professional managers have not really performed well and won confidence of the retail investors.

Anyhow, if you ask me how the Samvat 2072 is going to perform?  There are several people who believe it is going to be better than the year gone bye.  Well, you can argue on a relative basis, yes. But then, the stock market cannot be expected to be operating in isolation. As long as there is a vibrant economy, the Sensex would show vibrancy. But if the economy remains subdued, the market cannot beat the trend and be ahead of it always.

At the moment, the economic growth does not seem to be creating much of a confidence thanks to a bad global demand, low consumer confidence in the domestic market, heavy debt on the corporates and Narendra Modi government facing a hostile political environment in Parliament, where it enjoys majority only in the lower house.

Ironically, there are not many choices for the investors – Gold and property also remain subdued while returns on bank fixed deposits are declining. But in such a situation, the investors would generally prefer safety over returns. My sense is, retail investors would generally remain absent for the next few months . In fact, they are difficult to return. And then, this protracted threat  : Will Fed Reserve  raise rate or not? Anyways, investors have few choices- equity is not the preferred one .  

Pic courtesy: BSE 

Over 5 lakh employees, millions of shareholders, Govt all have big stake in TCS, Infosys….

In their earnings results for the quarter ended September , TCS and Infosys – India’s top two software and service exporters in that order- have delivered numbers which clearly point towards a stress in the IT sector , though it is still considered safe on relative terms. In the market, their shares fall in the safe category.

TCS has earned net profits of Rs 6084.66 crore  and Infosys R s 3398 crore.for the quarter. In their own ways, their managements , headed by N Chandrasekaran  and Vishal Sikka, among the most respected industry leaders,  have given their version but in a way admitted that there have been or there are chances of slippage because the pricing power is diminishing in the wake of difficult markets in the US and elsewhere.

Both of them get bulk of their revenue from the US, Europe and some part of it from China, Japan. All these markets , excepting somewhat better situation in America are battling consumer resistance, meltdown in manufacturing and processing sectors.  That surely has a bearing on their IT spend.

By their sheer size by Indian standards (by global standards, they are ‘ Bachas-kids), we have a big stake in our top IT exporting firms. Betweeen two of them , TCS and Infosys employ 5.23 lakh people, earn Rs 9482 crore …quarterly profits for their millions of shareholders and pay over Rs ten thousand as quarterly tax to the government.   

That is why , each time they have to declare their earnings, there are pre-result forecasts and post-result analysis. Their Public Relations people do not run after news persons for interviews. It is other way round. They filter the interview requests and some time do “favours” to some of us by giving  “exclusive “ interviews which are then splashed in not one by half dozen newspapers and broadcast all the major market channels. Anyhow, no complains. That is how it is !

Since the stakes are so high, concerns remain high whenever there are signs of stress. Thankfully, the leadership of these two firms realise that. I liked the way, Chandrasekaran  fielded the questions by BS and made some admissions about the volume slowing down. In his HT interview, he gave a very good quote which is what makes such companies tick. “ We want to be the most agile startups”.                           

In many ways, TCS does not behave like a typical Tata firm. It is really a global firm in outlook, reading the challenges and coming up with the solutions. The TCS CEO and MD made no bones about maintaining a distinct identity . 

Pics courtesy:  TCS, Infosys 

Infosys must empty its over-filled wallet and invest  

Infosys is sitting over a cash pile of USD 4. 5 billion. About time, India’s IT bellwether invested at least part of it and led investment revival in the country, aspiring high. 

Unlike most of the industries, particularly in manufacturing, well –performing IT service firms have enough cash on their balance sheets but have remained somewhat doubtful about expanding their operations and investment horizon. Infosys is among very few which are enjoying the warmth of cash while bulk of the Indian industry reels under debt.

If there are any sectors still considered somewhat safe for investors in the market, IT firms make the grade there as well. Top five of the Indian IT firms , be it TCS, Infosys or  Wipro …..have all survived market crash, 2008-09 global financial crisis included.

They cater to the best known Fortune 500 corporations, the likes of Apple Inc, Wal-Mart and Volkswagen. The Indian service firms have not only survived worst of economic crises, but also political onslaught in the US against outsourcing . Infosys gets about 63 per cent of its revenue from the US, followed by Europe.

While each time there is an earning season, TCS and Infosys surprise the investors with pleasant results, too much of cash on their balance sheets is not something that presents a forward looking outlook. It is good to be conservative but holding on to liquid assets beyond a point becomes counter-productive and may lead to missed opportunities.

In fact, with this kind of cash, Infosys can scout for some of the best assets in different class of high end technology applications at relatively cheap valuations. And with a tech-savvy CEO in Vishal Sikka , timing should be opportune for Nagavara Ramarao Narayana Murthy- promoted Infosys to go for the kill.  It need not spend the entire corpus at its command , but keeping it in safe wallet may not be a smart strategy.    

India's second-largest software services exporter has  reported a better-than-expected 9.8 percent increase for the quarter ended  September,2015. The company’s emphasis on moving up the value chain did help it .

Infosys posted a net profit of USD 525.07 million) in the September quarter.  

Pic: Infosys Facebook page