Sensex Trades Flat; IT Stocks Witness Selling Pressure

Fri, 13 Jan 01:30 pm

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After opening the day on a flat note, the Indian share markets have continued to trade flat with a negative bias. Sectoral indices are trading on a mixed note with stocks in the FMCG sector and the pharma sector witnessing buying interest. IT sector stocks are trading in the red.

The BSE Sensex is trading down 36 points (down 0.1%) and the NSE Nifty is trading 15 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading down by 0.1%, while the BSE Small Cap index is trading flat. The rupee is trading at 68.23 to the US$.

The Tata Group companies are in focus today as shares of Tata Consultancy Services (TCS) fell by as much as 3.5% as investors showed signs of worry on the performance of the business in the future, following key management changes.

Notably, TCS named its chief financial officer, Rajesh Gopinathan, to succeed N. Chandrasekaran the chief executive officer. And appointed NG Subramaniam as president and COO of the company.

The erstwhile TCS CEO, Chandrasekaran was named chairman of Tata Sons Ltd - the holding company of all the Tata Group companies, roughly three months after the former Chairman Cyrus Mistry was ousted. He will take charge from February 21.

TCS the country's largest IT services provider said its third quarter (profit increased 2.9% sequentially to Rs 68 billion, driven by the strong digital business. It touched US$ 1 billion mark in profit for the first time. Revenue during the quarter increased 1.5% to Rs 29.7 billion and dollar revenue growth was 0.3% at Rs 43.8 billion compared with previous quarter. Constant currency revenue growth for the quarter was at 2% with volume growth of 1% on sequential basis.

Despite beating market expectations, investors remained wary about the managerial changes as it was under the outgoing CEO's guidance that the company was able to continue to perform even when facing strong headwinds.

TCS is the single largest revenue generator for Tata Sons, contributing about 90% to its coffers but has faced headwinds in the last two years as the IT landscape changed abruptly. The company grew at a rapid pace between 2009 and 2014 but has since slowed due to its inability to build a stronger consulting practice.

It remains to be seen how the new management steers the company going forward. With the United States looking to restrict the usage of H-1B visas, Indian companies such as TCS may have to hire more in the US, which may increase costs.

Our team has written an excellent piece on how Donald Trump's planned policies will affect Indian IT companies in the long run. It is a must read.

Moving on to news about the economy. According to an article in The Economic Times the government is mulling over introducing a 'cash tax' on cash withdrawals in the 1 February budget.

The government is weighing the pros and cons of the proposal, which could be a tweaked form of the earlier banking cash transaction tax, under which tax will be levied on cash withdrawals above a certain ceiling from bank accounts.

This could be seen as another push of the government's agenda to move towards a cashless economy by incentivizing digital payments and discouraging cash transactions.

According to Reserve Bank data, digital payment transactions in December 2016 were 43% higher than in November and totaled 958 million. This may well be a positive trend but that does not mean that cash can be done away with completely.

As my colleague Bhavita puts it in a recent edition of the 5 Minute WrapUp...

• Let us remind you, a large part of the Indian population is still outside the banking system. SBI chief Arundhati Bhattacharya too raised various concerns on this front recently. The disparity in the country is wide, and the gap between the accessibility to services and delivery of them won't be easily filled.
  
  Taking all these aspects into account, would it not make more sense for the government to align its vision of curtailing black money with a better tax structure and further reforms, rather than a cashless society?

Move towards Cashless - A Long Way to Go

While the government's cashless drive is a step in the right direction in terms of development, the size and quantum of digital transactions - through PoS and mobile - need to go up multi-fold before India can even think of becoming cashless.

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