IT stocks lead the surge

Tue, 18 Jan 09:30 am

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Asian markets have opened today on a mixed note. While stocks in Hong Kong (up 0.6%) and Singapore (up 0.2%) are seeing buying interest, those in China (down 0.2%) are facing some selling pressure. As for the Indian markets, these have opened in the positive today. IT and realty stocks are witnessing buying interest currently.

The BSE-Sensex is trading higher by around 180 points (0.9%), while the Nse-Nifty is up about 55 points (0.9%). Mid and small cap stocks are also trading with gains, with the BSE Midcap and BSE Small cap indices up by 0.8% apiece. The rupee is trading at 45.56 to the US dollar.

Software major TCS announced its 3QFY11 results late yesterday. To say the least, the performance has been very good. This is especially in light of the lacklustre performance reported by its closest peer Infosys just five days ago. TCS has recorded a 4% QoQ growth in net sales during the quarter (as compared to Infosys 2% growth). This has been led by a near 6% QoQ growth in volumes. Its net profits have surged by over 9% QoQ (Infosys' grew by less than 3%). The company added a gross of around 12,500 employees during the quarter suggesting that it is seeing a good visibility of order flows in the future. The company maintained its utilisation (excluding trainees) at 83.8%. Its overall attrition rate however increased marginally to 14.4%, including attrition in the IT services business of 13.2%. The company is seeing a strong growth momentum from the UK and Asia-Pacific markets. Deal flows from the US markets are also picking up pace after last two years of slowdown. Interestingly, TCS management sounded positive on the growth momentum in its conference call yesterday. This is unlike Infosys' management that wore a cautious look last week. The markets have welcomed TCS performance. This is seen from the gains that the stock is trading at currently. Other key gainers from the sector include Oracle Financial Services and Tech Mahindra.

Engineering stocks have also opened in the positive today. Key gainers here include Punj Lloyd and Crompton Greaves. Engineering behemoth L&T also announced its 3QFY11 results yesterday. The company has recorded a strong 40% YoY growth in sales during the quarter. This has largely been a result of a 42% YoY growth in sales from its engineering and construction business. However its operating margin has dropped to 10.1% (from 11.6% during 3QFY10) owing to higher commodity prices. Subsequently its net profits (excluding extraordinary items) have grown by just around 16% during the quarter. As for the 9mFY11 performance, while sales have grown by 22% YoY, net profits (excluding extraordinary items) are up 18% YoY. The company is facing delays in new order inflows. This is seen by a 25% YoY drop in its order inflows during the quarter. Its order backlog now stands at Rs 1.1 trillion. The management has attributed this decline in new order inflows to delays in decision making from the clients' end. It has indicated that client companies from both the public and the private sectors have delayed finalising orders due to several reasons. Some of these include unavailability of land, lack of finances for projects, or a cut in capex due to low demand. The management is however confident of achieving its sales growth guidance of 20% for the current year (ends in March 2011). It also hopes to maintain its operating margin at FY10 levels of around 11.5%.