Markets pare gains but continue to trade in green

The local equity markets continue to trade positive in the late-morning session despite paring some of their early gains, the global cues have turned somewhat supportive, as some of the regional peers have cut their losses while the US futures were trading in positive terrain. Back home Reliance Communication has strengthened by 4.4% emerging as the top gainer on the BSE. The IT sector, which was a relative outperformer amid the carnage in the previous trading session, is witnessing selling pressure today. TCS has cracked by 2.26% emerging as the top loser on the BSE, though markets were getting support from Bankex, Metal, Oil & Gas, Capital Good companies. The broader indices were also trading in positive terrain. The market breadth on the BSE was marginally positive; there were 1332 shares on the gainers side against 1203 shares on the loser's side, while 107 shares were unchanged.

The BSE Sensex increased 89.92 points or 0.45% at 19314.04. The index touched a high and a low of 19431.56 and 19198.14 respectively.

The BSE Mid-cap index and Small-cap index were down by 0.09% and 0.26% respectively.

The main gainers in the BSE sectoral space were Bankex up 1.27%, PSU 0.99%, Metal up 0.84%, Oil & Gas 0.82% and Capital Goods (CG) up 0.75%.

IT down by 1.44%, Reality down by 1.30% and TECk down by 0.96% were the only losers in the sectoral space .

The major gainers on the Sensex were Reliance Communication up 4.04%, Hindalco up 3.12%, Bajaj Auto up 2.54%, SBI up 2.13% and ONGC up 1.99%

On the flip side, TCS down by 2.26%, Infosys down by 1.67%, DLF down by 1.27% , Maruti Suzki down by 0.98% and Wipro was down by 0.59%.

India's information technology industry is expected to show strong performance in the December quarter. The results of big players are expected to show strong volume growth owing to continued improvement in global economy and increasing demand for IT services as the recovery becomes more sustainable over time.

Analysts opine that, in terms of US dollar, revenues of the 4-5 biggest companies will expand in the range of 5-7% on sequential basis, which is rather impressive in the backdrop of a seasonally soft quarter. The growth will come on top of a strong volume growth seen in previous quarter when both TCS and Infosys surprised the markets on upside. However, in rupee terms the expansion will be significantly modest due to over 3% appreciation of Indian currency against dollar.

Some upward bias in the dollar growth will also be there on account of favourable cross-currency movements. The US currency depreciated against other major currencies in the Oct-Dec 2010 period. It went down 1.9% against the UK pound, 5.1% against the Euro and 9.1% against the Australian dollar. This will result in greater dollar earnings for IT companies against payments made in these currencies.

The performance of mid cap companies will however be much more mixed. Companies with significant export share will manage to show reasonable volume growth, but most will be behind the top league. In rupee terms growth is likely to be much lower here as well. If this indeed is the case, it would be repeat of last quarter when mid caps were significantly behind industry leaders in volume growth. Industry insiders expect the trend to continue for some more quarters in that big companies will remain ahead of the rest in terms of growth. 

With regard to margins, all the players are set to face difficulties. Rising costs of operations and higher attrition rates would squeeze margins for both large and small players. Top league players may face a decline in EBITDA margins by 30-40 basis points on account of higher costs. Things could be worse for mid-sized companies where the attrition was highest over the last quarter. Analysts estimate that attrition levels in smaller companies were around 25-30 %, as compared to 14-17 % for the larger companies.

Overall, the performance of most of the IT firms will be quite in-line with their respective numbers in the second quarter of the fiscal. This is mainly because the factors like stable pricing and attrition levels have not changed much. However, the guidance for the fourth quarter growth could be somewhat conservative due to lack of clarity on client's IT spending budgets for 2011, potential rupee appreciation and some renewed worries on sovereign debt issues in the Europe.

The S&P CNX Nifty was up by 22.65 points or 0.39% to 5785.50.The index touched a high and a low of 5822.80 and 5754.90, respectively.

The top gainers on the Nifty were HCL Tech up by 4.07%, Hindalco up by 3.47%, Reliance Communication up by 3.36%, Bajaj Auto up by 2.46% and ACC was up by 2.04%.

The top losers on the index were down by 2.54%, SAIL down by 2.09%, Infosys down by 1.82%, Wipro down by  1.30% and IDFC was down by 0.79%

The regional peers were trading mixed; Hang Seng was up by 0.97%,Straits Times up 0.34%, Seoul Composite up 0.36%, Taiwan Weighted up 1.29%, whereas Nikkei 225 was down 0.29%, KLSE  composite down 0.15% and Jakarta Composite was down by 0.78%.

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