Sensex Opens Flat; TCS Falls on Poor Q1 Result

Wed, 10 Jul 09:30 am

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Asian share markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is flat while the Hang Seng is up 0.5%. The Nikkei 225 is trading down by 0.2%. Meanwhile, the S&P 500 ended slightly higher on Tuesday as gains in tech-related shares offset worries about a weakening outlook for earnings. Investors braced for remarks this week from Federal Reserve Chairman Jerome Powell during his two-day testimony before Congress, which starts today.

Back home, India share markets opened the day on a flat note. The BSE Sensex is trading up by 56 points while the NSE Nifty is trading up by 14 points. The BSE Mid Cap index and BSE Small Cap index opened up by 0.3% and 0.1% respectively.

Sectoral indices have opened the day on a mixed note with IT stocks and healthcare stocks leading the losers. Metal stocks and realty stocks have opened the day in green.

The rupee is currently trading at 68.55 against the US$.

If the India Volatility Index (VIX) score is anything to go by, we are in for a turbulent ride ahead.

The India VIX Index measures the volatility expected over the next 30 days. It touched an all-time high recently.

Market Volatility Highest in Years

Uncertainty over the general elections, trade war threats between US and China and rising crude oil prices have all contributed to widespread fear among investors.

While the 2018 correction was mainly due to corporate governance issues back home, the threat of macro issues looms large in 2019.

For you, dear reader, it is important to ignore the short-term noise of the mainstream media.

While the volatility index is high, it is no indicator of the market direction.

Co-head of research at Equitymaster, Tanushree Banerjee believes, safe stocks with strong fundamentals will do well regardless the short-term volatility.

In fact, the volatility might just give you an opportunity to load up on these quality businesses.

In the news from the IT sector. Tata Consultancy Services (TCS) has performed steadily in the first quarter of financial year 2019-20 (FY20) by sustaining double-digit growth.

TCS on Tuesday announced it posted a net profit of Rs 81.3 billion, a 10.8% rise over the corresponding period of the previous financial year.

Sequentially, the rise was marginal. During the April-June period, the Mumbai-based firm reported an 11.4% rise in revenue at Rs 381.7 billion on a year-on-year (YoY) basis while it was 0.4% higher over the preceding quarter.

In dollar terms, revenue was US$5.5 billion, up 8.6% YoY, while the rise in constant currency terms was 10.6%.

TCS, during the quarter, added four clients in the US$100-million bracket (clients that contribute US$100 million in revenue on an annualised basis), taking the count of such clients to 44.

However, a stronger rupee proved to be a drag on the operating margin, which fell 90 basis points sequentially.

During the quarter, currency appreciation and wage hikes accounted for a 90 basis-point fall in margins, the reports noted.

However, forex, treasury, and tax lines strongly defended the net margin. Among verticals, revenue growth was mostly broad-based with life sciences and healthcare leading the pack with 18.1% YoY growth. The BFSI (banking, financial services, and insurance) vertical, a key one, grew 9.2%, while retail and CPG (consumer packaged goods) was up 7.9%.

Growth in the BFSI segment, however, was slow compared to the preceding quarter, in which TCS posted around 11.6% growth.

Among other verticals, communications and media grew 8.4%, and technology and services 7.8%.

TCS share price opened the day down by 1.5%.

Moving on to the news from the economy. The bilateral trade between India and China has declined by 3.6% year on year, totalling US$36.9 billion in the first five months of this year, denting optimism that the total trade volume may cross US$100 billion mark in 2019.

The India-China bilateral trade last year touched a historic high of US$95.5 billion, raising hopes that the trade this year could cross the historic US$100 billion mark.

The trade deficit in 2018, according to Chinese official data, climbed to US$57.86 billion from US$51.72 billion in 2017.

As per the latest data released by Chinese customs, the bilateral trade in the first five months of 2019 has declined by 3.6% year on year amounting to US$36.9 billion.

In the same period, India's exports to China declined by 1.6% to reach US$7.7 billion while Chinese exports to India decelerated by 4.1% to total US$29.2 billion.

In May this year, the bilateral trade declined by a significant 5%, totalling US$8.2 billion year on year.

India's exports to China in May 2019 stood at US$1.5 billion, decreasing by 7.2%, while Chinese exports have declined by 4.5%, standing at US$6.7 billion.

Major growth commodities of India's export basket in the period January-May 2019 were organic chemicals at 23.6%, cotton 50.7%, plastics 25.5%, fish and crustaceans 395%, electrical machinery 33.5%, Iron and steel 39.1% and coffee, tea, mate and spices 654%, according to the reports.

Export of commodities such as natural earls, precious stones, copper, mineral fuel declined by 29.7%, 89.2%, 39.4% respectively from January-May period.

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