Sensex Trades Strong; Capital Goods Stocks Lead Gains

Mon, 3 Apr 01:30 pm

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After opening the day on a positive note, share markets in India have continued their momentum and are trading marginally above the dotted line. Apart from stocks in the metals sector and stocks in the IT sector, all sectoral indices are trading on a positive note. Stocks in the realty sector and stocks in the infra sector are leading the gains.

The BSE Sensex is trading up by 230 points (up 0.8%), and the NSE Nifty is trading up by 46 points (up 0.5%). Meanwhile, the BSE Mid Cap index is trading up by 0.7%, while the BSE Small Cap index is trading up by 1.3%. The rupee is trading at 64.90 to the US$.

In news from stocks in the IT sector. Infosys share price fell over 1% in today's trade as the company after Infosys co-founder and IT industry icon NR Narayana Murthy criticized the huge pay hike given to the company's Chief Operating Officer (COO) UB Pravin Rao.

The IT major is in the news for the wrong reasons yet again as a fresh row erupted between the founders and the company board over pay hike to its COO.

In a letter addressed to reporters, NR Narayana Murthy said the quantum of increase would erode the trust of the rank-and-file employees.

"Giving nearly 60% to 70% increase in compensation for a top-level person (even including performance-based variable pay) when the compensation for most of the employees in the company was increased by just 6% to 8% is, in my opinion, not proper," Murthy said.

In October, Infosys said it was raising Rao's salary to include a fixed compensation of Rs 46.2 million and variable compensation of Rs 38.8 million per annum.

This was put to vote on February 23, and voting ended on Friday last week. However, a majority of the promoters did not vote for a resolution seeking a salary increase for the COO. Only 24% of promoter votes were cast in favour of the resolution seeking a 35% rise in Rao's compensation.

This mirrored the promoters voting 12 months ago, on a resolution seeking a two-year extension and a revised compensation of US$ 11 million for chief executive Vishal Sikka.

The latest developments cast a doubt about the levels of corporate governance at Infosys. It remains to be seen how the company plans to move away from such issues and focus on increasing value for its minority shareholders.

At the time of writing Infosys share price was trading down by 1.1%.

In news from India's manufacturing sector. The manufacturing sector continued its rebound from the notebandi induced downturn. The sector expanded well in March as a rebound in export demand along with a sharp rise in production, contributed to a stronger expansion of total new orders, according to the Nikkei Purchasing Managers' Index (PMI) survey by Markit.

Having deteriorated in December for the first time in one year, the health of India's manufacturing economy showed signs of improvement in January 2017. The manufacturing PMI recovered from 49.6 in December 2016, to 50.4 in January 2017 and continued moving upwards marginally to 50.7 in February.

The sector continued its upward move, as PMI rose to 52.5 in March, registering the fastest upward move since October 2016.

PMI Continues to Growth

It is evident from the above chart that the manufacturing activity is inching towards the pre-demonetisation levels noted in October 2016. However, manufacturing is seen to steadily pick up from the notebandi blues.

The robust PMI data comes after dismal infrastructure and industrial data in January and February.

Earlier, government data showed India's infrastructure sector grew at its slowest pace in five months in February mainly due to lower cement output. India's industrial output grew just 2.7% in January as cash ban dampened consumer demand.

On the prices front, although both input costs and output charges rose further, inflation rates softened from February. During March, the rate of inflation slowed to the weakest in four months and was below the long-run survey average.

The main factors contributing to the PMI increase in March were a strong export demand and a rise in output and orderbooks. Moreover, firms hired additional employees to cope with greater workloads.

Looking ahead, production volumes are likely to rise further as businesses will seek to replenish their stocks, as remonetisation nears completion.

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