Sensex Trades on a Volatile Note; IT Stocks Drag

Wed, 5 Apr 01:30 pm

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After opening the day on a negative note, the Indian share markets witnessed volatile activity and are currently trading flat with a positive bias. Sectoral indices are trading on a mixed note, with stocks in the realty sector and the consumer durables sector witnessing maximum buying interest. Stocks in the IT sector are leading the losses

The BSE Sensex is trading up by 17 points (up 0.1%), and the NSE Nifty is trading up by 12 points (up 0.1%). Meanwhile, the BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 1.1%. The rupee is trading at 64.95 to the US$.

Stocks in the IT sector are under pressure today after the Donald Trump government announced measures to step up scrutiny of H1B visa holders in the US.

The $115-billion software services sector in the country will possibly have to deal with fresh restrictions as the US government announced its intention to prevent the abuse of the H1B work visa system and said the system should help US companies in hiring highly skilled foreign workers when there is a shortage of skilled employees in the country.

There are plans to prohibit visas to entry-level engineers too. H1B work visas are most sought after by Indian firms and professionals, mostly in the Information Technology sector.

The US Citizenship and Immigration Services Agency (USCIS) on Monday said it would scrutinise petitions on three parameters - validation of employer's basic business information, higher H1B employee ratio and employers petitioning for H1B workers who work offsite at another company or organisation's location. There will be more scrutiny of fresh engineers who apply for these visas.

The US opened the window to invite applications for 85,000 H1B visas it plans to issue for 2018.

The latest announcement comes at a time when there is already an air of protectionism in the global markets. Singapore and the UK are both cutting down on visas to Indians in the IT sector, while also increasingly protecting high-paying computer engineering jobs for locals.

For many Indian companies, Singapore acts as a base for Southeast Asia, while the UK is a regional base in Europe.

An overall protectionism trend is expected to hit the Indian IT firms' bottom line. Especially in the US which accounts for more than 50% of revenues of India's IT majors.

Will Trump Mania Impact IT Companies Revenues from US?

Indian IT companies such as Infosys, Wipro, and TCS may have to bear a hit on their revenues for the short term.

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 defence.

So as long as you aren't worried about the revenue guidance in the coming quarters, you need to do just one thing: Stay vigil on valuations.

And you never know, the Trump crash may be an opportunity to act on not just IT but lots of other safe stocks as well.

Moving on to news from stocks in the Auto Ancillaries sector. According to an article in Mint, Bharat Forge Ltd, India's largest auto parts maker, plans to raise US$ 500 million in an overseas bond sale.

The money raised will be used to reduce its debt as well as for greenfield expansion.

The company will use the money to restructure debt and finance expansion. As of September quarter, Bharat Forge's total standalone debt was Rs 21 billion.

Bharat Forge, which has seen a decline in revenue from auto components business, has been expanding its presence in non-auto areas. In the last couple of years, the company's exports have declined.

Bharat Forge is planning a capital expenditure of Rs 3 billion in FY17, including two new press lines of 5,000 tonnes and 2,000 tonnes for new passenger vehicle (PV) business. The company targets to be debt-free by FY18.

The past few months have seen some activity among Indian entities seeking to raise money abroad through bonds. Last month, the country's largest lender State Bank of India (SBI) said it will be tapping overseas debt markets with a US$ 1.5 billion bond sale next financial year. In January, SBI had raised US$ 500 million in a five-year dollar bond sale.

JSW Steel Ltd also plans to sell bonds and has hired investment bankers.

At the time of writing, Bharat Forge share price was trading up by 0.2%.

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