Sensex Trades Marginally Higher; Capital Goods Stocks Witness Buying

Fri, 10 Mar 11:30 am

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After opening the day on a firm note, stock markets in India witnessed some losses and are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the capital goods sector and IT sector witnessing maximum buying interest. Energy stocks are trading in the red.

The BSE Sensex is trading up 26 points (up 0.1%) and the NSE Nifty is trading up 7 points (up 0.1%). The BSE Mid Cap index is trading down by 0.1%, while the BSE Small Cap index is trading up by 0.3%. The rupee is trading at 66.69 to the US$.

Indian stock markets are witnessing volatility amid the ongoing UP assembly elections. It remains to be seen how market participants will react to the exit poll projections that suggested big gains for the BJP in the recently-concluded state elections.

Also, the second leg of the Budget Session that started yesterday will influence stock market sentiments. The session will be regarding passage of many bills like Consumer Protection Bill and Maternity Benefit Bill (Amendment) Bill, 2016, along with the passage of many GST-related bills.

As far as investing in stock markets is concerned, the above developments should not change one's perception about businesses and the way they're valued. In other words, looking out for value and following a long-term investing approach could prove to be the best play.

As Rahul Shah, co-head of research, noted in in one of the recent editions of the 5 Minute WrapUp:

• Be it the Union Budget, GST or a great monsoon, you always got to ask the all-important question: Everything said and done, am I paying too much for the stock in relation to its intrinsic value?

As per an article in the Economic Times, many US clients of India's information technology (IT) services industry are inserting new caveats and exit clauses into outsourcing contracts. This development is seen on fear that the Donald Trump administration could bring in a new tax regime that would make offshoring more expensive.

Several companies that outsource their work are wary they may face additional taxes of around 20% if they offshore their businesses under new laws that may be introduced within a year or so. Owing to these, many companies are tweaking the way they outsource by introducing clauses such as pricing renegotiation in case of a tax hike and easier exit policy, etc.

Apart from the above, Indian IT companies are also facing the brunt of immigration restrictions proposed by the Trump administration.

Large Indian IT companies, on an average generate more than 50% of their revenues from the US clients. They have built a strong client base over the years in the US market. If the suggested changes for immigration get cleared, the cost component for the Indian IT companies will go up. The need to reduce their US exposure and move to other geographies is a given.

Will Trump Mania Impact IT Companies Revenues from US?

However, we believe that it is unlikely that the companies will substantially bring down their focus on the US. Instead companies may look out for other means to reduce costs or protect margins.

That said, Indian IT companies will also need to rise to Trump's challenges. But fortunately, most were already gearing up for this. Trump may have only accelerated their defense.

So if you aren't worried about the revenue guidance in the coming quarters, you need to do just one thing: Stay vigil on valuations. As you never know, the Trump crash may be an opportunity to act on not just IT but lots of other safe stocks as well.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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