India Markets Thursday Wrap-Up: Infosys' Poor Showing Drags Markets

by: Equitymaster

The Indian stock markets started of the day below par on account of the disappointing results and revenue guidance from Infosys (NASDAQ:INFY), one of India's largest players in the software space. The company revised its guidance downwards on account of uncertainty in the global client environment. Seeing its guidance investors were negative on other stocks in the software space as well, sending the index lower by over 5%.

The indices traded well below the dotted line and the market breadth was negative with 1.4 as many declines as advances. While the BSE-Sensex closed lower by around 257 points (down 1.5%), the NSE-Nifty closed lower by around 71 points (down 1.3%). The smaller indices had a relatively better day on the bourses, but they also could not close in the positive. The BSE Mid Cap index and the BSE Small Cap closed 0.6% and 0.7% lower respectively. Most sectoral indices saw declines today with the exception of realty and oil and gas stocks. IT and consumer durables were the top losers.

As regards global markets, Asian indices had a negative outing today. European indices opened the day in the negative zone. The rupee was trading at Rs 55.8 to the dollar at the time of writing.

Bank advances in India grew marginally in the first quarter of the new fiscal year. Corporate borrowing was low on account of sluggishness in the economy. Bankers said the pace of loan and deposit growth was also slow in the June quarter because corporates usually prefer to borrow in the second half of the fiscal year. Banks' credit grew 1.2% in 1QFY13, while deposits rose 1.9%, according to data released by the Reserve Bank of India (RBI). With the economy not showing signs of a revival, bankers are not confident of achieving RBI's loan and deposit growth projections. The country's economic growth slumped to its lowest level in nine years to 5.3% in 4QFY12. The central bank currently projects credit growth at 17% in FY13 and deposit growth at 16%. However, if the sentiments improve during the second half of the year then the targets can be achieved. Now, in the absence of demand for credit, banks continued to park their money in central and state government bonds. Investment in government bonds and other approved securities rose 6.7% to Rs 18.6 trillion rupees in the three months to June. Banking stocks closed lower in trade today, with Punjab National Bank (PNB) and Axis Bank seeing a sell-off.

The government has set an ambitious target to garner Rs 300 bn from the disinvestment in public sector units in the current fiscal year. This comes on the back of a dismal performance last year, where only around 32% of the planned divestment could be achieved. The Union Cabinet was expected to consider a proposal on Thursday to sell a 10.82% stake in Steel Authority of India (SAIL) in a desperate bid to raise resources to fund its various development programs. The planned sale could fetch the government up to Rs 40 bn at the current market capitalisation. The Center holds 85.82% in the company. However, the sale decision was once again delayed as the Steel Minister Beni Prasad Verma was away on an official tour. Sentiments in the markets are choppy and several issues have been postponed. The government also desperately needs to repair its dismal finances. Thus firm decisions with regards to divestment of public companies needs to be taken forward. Plus the government needs to garner some credibility post the Oil and Natural Gas Corporation Ltd. (ONGC) sale disaster.