Markets get the tech-tonic!

Fri, 16 Jul Closing

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Although Indian markets continued to remain volatile during the closing hours of trade, they did manage to close the day in the positive. The BSE Sensex edged higher by around 50 points (up 0.3%) whereas NSE Nifty closed the day with gains of around 15 points (up 0.3%). BSE Midcap and Small cap indices also closed the day in the positive.

Around 3 stocks gained for every 1 that declined on the Sensex today. By jumping more than 6% in a single day, tech bellwether TCS contributed in good measure to the gains on the Sensex. Infosys, another tech heavyweight also contributed in a positive manner.

While Asian indices closed mixed today, similar trend is being witnessed across Europe as well. The rupee was trading at Rs 46.8 to the dollar at the time of writing.

Markets groped for direction on yet another occasion today. This usually happens when different investors start pulling stocks in different directions. And this trend was in evidence throughout the week. In fact, it will not be out of place to say that this has been the trend for the year so far. Gone are the days when the markets kept moving in just one direction. Like they did in 2009! Back then, not only did more money kept pouring into stocks, fundamentals were also on the upswing. However, both these factors have more or less plateaued now. And hence the sideways movement. Barring a huge correction due to global factors, the indices are destined to remain sideways for quite some time to come.

Mid cap IT stocks traded mixed today with gainers being Geometric and Mastek whereas companies like Mindtree and Polaris ending up amongst the losers. As per a leading business daily, quarterly results for mid cap IT companies are expected to come in rather subdued with there being a good degree of pressure on margins. While there is likely to be growth on the topline front, led by pickup in demand in the US, currency fluctuations and salary hikes are expected to pressurize margins. Not to mention the ever present challenge of higher attrition. On the forex front, with the dollar rising against the euro, companies that have good amount of exposure to Europe may be relatively more affected than the others. As far as salaries are concerned, companies have given an average wage hike of 12-14% offshore and 2-3% onsite in order to be competitive and this may also take toll on profitability. Important to note that the full impact of these things and also the ongoing crisis in Europe will become clear only after another couple of quarters go by.

Heavy users of steel such as automakers and white goods manufacturers may be contemplating another round of price hikes. But the fact remains that the price of their major raw material steel has actually come down in the past quarter or so. As per the steel industry, steel prices have softened from Rs 37,000 per tonne in May to Rs 31,000 in July, a decline of a sizeable 16%.

On account of a demand slowdown in the developed world, more and more steel is finding its way into the Indian market and this is keeping steel prices on the lower side. However, the steel industry feels that prices have now bottomed out and a price rise may be in the offing soon. Whether the auto industry and the consumer durable manufacturers pass it on to the end users remains to be seen. Auto stocks were seen trading mixed today with major gainer being Tata Motors whereas M&M emerged amongst the major losers.