Shares ripe for profit-taking
Heightened geopolitical tensions in the Middle East and quarterly results that are set to start roll out this week should keep investors in Indian stocks on tenterhooks, as the stakes are high with the market just shy of record peaks.
The US cruise missile strikes on a Syrian airbase, sending global oil prices up more than two per cent and a warning from Russia, has rattled investors. Any escalation in the standoff could trigger an outflow from risk assets to the relative safety of gold and bonds. For India, the recipient of strong foreign inflows, this would be particularly worrying.
Dependant on imports for about 80 per cent of the oil India consumes, a further increase in world crude prices would stoke inflation. The central bank kept its main policy rate, the repo rate, unchanged at 6.25 per cent as expected at its monetary review last week, but a build-up of price pressures could hasten a rate rise.
“Markets abhor war clouds and associated uncertainties,” said equity strategist V. Venugopal. “We have had a solid rally. It’s time to take some profit off the table.”
Both the main indices eased on Friday, trimming gains to about 0.3 per cent for the week, after the missile strikes on Syria. The top-30 Sensex ended at 29,706.61, after rising to 30,007.48 midweek, within knocking distance of its all-time peak of 30,024.74 reached on March 4, 2015. The benchmark has gained 11.6 per cent so far this year.
The broader Nifty-50 closed at 9,198.30 after hitting a record 9,273.90 on Wednesday.
Traders are concerned about the unpredictable streak of US President Donald Trump, whose confrontational politics is taking a toll on his standing within America. A recent poll showed his domestic rating was the lowest for any president in decades. His risky foray into Syria as the tough global cop could keep markets on edge.
Software bellwether Infosys Ltd, which is also listed on Wall Street, kicks off the earnings season for major companies on Thursday. The poster boy of Indian outsourcing is fighting several battles to stay relevant in a fast changing world, and fund managers would be watching closely on how the company is viewing the emerging scenario.
Indian software services companies are trying to move up the value chain to overcome thinning margins. President Trump’s clampdown on H1-B work visas and his pledge to bring back jobs to the US poses a major challenge to information technology companies such as Infosys that get a bulk of their revenue from America.
Besides the tough business environment, Infosys faces serious questions about fat paycheques for its top management. N.R. Narayana Murthy, a highly respected key founder of Infosys, recently shot off a letter criticising a sharp increase in salary to Chief Operating Officer Pravin Rao, saying it would demoralise thousands of other staff.
“Giving nearly 60 per cent to 70 per cent increase in compensation for a top level person [even including performancebased variable pay] when the compensation for most of the employees in the company was increased by just 6 per cent to 8 per cent is, in my opinion, not proper,” Murthy wrote.
“This is grossly unfair to the majority of the Infosys employees including project managers, delivery managers, analysts, programmers, sales people in the field, entry level engineers, clerks and office boys who are toiling hard to make the company better.” Infosys has set a revenue target of $20 billion (Dh73.4 billion) by 2020, nearly double its expected revenue in 2016-17, and the results and guidance would show whether the company is on course.
Investors could draw comfort from the improving manufacturing sector, which should underpin earnings for several companies in the months ahead. A private survey, compiled by IHS Markit, showed factory activity in March expanded at the fastest pace in five months, riding on robust growth in output and new orders.
The Nikkei Manufacturing Purchasing Managers’ Index climbed to 52.5 in March from 50.7 in February, marking the third straight month above 50 that separates growth from contraction.
Output and new orders sub-indexes shot to their highest since last October, indicating the $2 trillion economy has recovered from Prime Minister Narendra Modi’s abrupt decision in November to scrap high-value notes that comprised 86 per cent of the currency in circulation.
The services industry also picked up steam with the Nikkei/ IHS Markit Services Purchasing Managers’ Index racing to a five-month high at 51.5 in March from 50.3 in February.
“India’s private sector economy stayed on an upward trajectory during March, benefiting from an upswing in demand and output,” said Pollyanna De Lima, an economist at IHS Markit.
Shares in energy conglomerate Reliance Industries Ltd, which also has interests in mobile services and retailing, shot up to Rs1,448.50, their highest in nine years, as investors turned upbeat on higher revenue and earnings, both from its refining and petrochemical operations as well as telecom services. The company began charging for its mobile data services from April, after offering call and multimedia mobile services free since the formal commercial launch last September. With more than 100 million subscribers already on its rolls, it could start to ring in the cash registers in the world’s fastest expanding mobile services market.
Controlled by Mukesh Ambani, India’s richest man, the company has invested more than $22 billion to build a nationwide optic fibre network and acquire radio waves, giving its Jio services the widest reach.
Reliance shares climbed as high as Rs1,448.50, before closing the week at Rs1,405.55, showing a 36.4 per cent jump in two months.