Sensex Trades Positively; IT Stocks Outperform

Thu, 16 Feb 01:30 pm

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After opening the day on a flat note, share markets in India witnessed buying activity and are currently trading marginally higher. Sectoral indices are trading positive note. With the exception of stocks in the FMCG sector all sectoral indices are trading in the green. Stocks in the IT sector and the realty sector are leading the gains.

The BSE Sensex is trading up by 108 points (up 0.4%) and the NSE Nifty is trading up by 38 points (up 0.4%). Meanwhile, the BSE Mid Cap index is trading up by 0.6%, while the BSE Small Cap index is trading down by 0.9%. The rupee is trading at 66.93 to the US$.

Tata Consultancy Services (TCS) share price surged by 2.8% in intraday trade today as the company informed exchanges that its board would consider a proposal for buyback of equity shares of the company at its meeting to be held on February 20, 2017.

The buyback, if approved in the board meeting, would be the company's first since its listing in 2004. In past one year, the stock of the country's largest software company has underperformed the market by gaining 6% as compared to 19.5% surge in the S&P BSE Sensex.

The news comes at a time when Indian IT companies are under pressure to address shareholders' concerns. Investors have been expecting Indian IT firms to offer buybacks or dividends for a long time as the companies sit over billions in cash.

TCS has Rs 431 billion cash on its books at the end of the December quarter, which is nearly 9% of its market capitalisation. TCS can do buyback of maximum of Rs 209 billion or 25% of its net worth.

Indian IT companies are facing multiple headwinds in recent times, including concerns over corporate governance issues in Infosys. Regulatory changes over visa processes in USA - which remains a major market for IT firms - have added to the woes.

Along with the above, the IT sector is changing significantly with the arrival of automation. The number of jobs available in the IT sector are likely to shrink by as much as 14% by 2021.

Shrinking Jobs in the IT Services Sector

As it stands, the current scenario poses a challenging environment for Indian IT companies. However, with strong fundamentals and a proactive management, most if not all of Indian IT majors should be able to see the current crisis through.

Moving on to news from stocks in the paints sector. One of India's largest paint companies, Asian Paints announced its subsidiary Berger International will fully acquire Sri Lanka's Causeway Paints.

Berger International Pvt Ltd, which is based in Singapore is an indirect subsidiary of Asian Paints. It reached an agreement with Causeway Paints Lanka Pvt Ltd (CPLPL) based in Sri Lanka, for acquisition of 100% stake in CPLPL in an all cash deal.

The transaction is aimed at enhancing the group's presence in the Sri Lankan market, where Asian Paints through its subsidiary, Asian Paints (Lanka) Limited, already has operations.

Asian Paints did not disclose the deal size. However, it said, CPLPL reported revenue of Sri Lankan rupee 5,630 million (approx. Rs. 2.53 billion) in the previous fiscal.

Asian Paints had reported a 1.5% increase in consolidated net profit at Rs 4983 million for the December quarter results of the current fiscal. It had posted net profit of Rs 4820 million in the same period last year.

At the time of writing, Asian Paints share price was trading down by 0.8%.

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