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Monday,
April 14, 2003, Chandigarh, India  
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Infosys
shockwave: don’t sell in panic Reducing
the burden of taxation Inflation
touches 2-year high at 6.24 pc FIIs’
net buyers in equities |
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Stock
markets look weak
Notice
of loss to transporter must
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Infosys shockwave: don’t sell in panic It was a kind of spectre that investors might have never witnessed before and would never wish Technologies, the
bellwether IT stock, tumbled from Rs 4158 to Rs 2617.50, a whopping unprecedented crash of 37.05 per cent in just two trading sessions. (Infosys on NASDAQ crashed by 32 per cent in just one trading session on Thursday). This was despite the company announcing 48.87 per cent increase in revenues and 23.14 per cent rise in net profits for the quarter ending March 2003 corresponding to previous quarter thereby fully meeting the analysts expectations. Then why such a fall? The reason was muted “future guidance” given by the management of the company anticipating a net profit growth of just 11.2 per cent to 12.5per cent for the entire fiscal year 2003-04 which disappointed the market miserably as it was expecting the company to maintain a growth rate of atleast 23-25 per cent. For the quarter ending June 03 sales are projected to be in the range of 1033-1043 crores an increase of just 1-2 per cent over preceding quarter. EPS projected for this period between 38.60-38.80 is also lower than that of the present quarter. The market simply could not digest the tamed numbers which played havoc with the tech counters and with Infosys in particular. Secondly the chief reason for the “free fall” is explained by the fact that hedge funds, institutional investors, mutual funds and more importantly the tech funds namely Franklin Templeton Fund, Franklin Internet Opportunity Fund, UTI Software Fund are holding quite a greater percentage of Infosys in their portfolios. The moment they were listening to Investor Relations Call Conferencing they pressed sell buttons on the counter. Bears too jumped into the fray and then followed the relentless fall. Another stock to join the bandwagon was Mastek which collapsed like nine pins, unprecedented 50% per cent the day the company announced its results which again disappointed the market heavily. It too cut its earlier future guidance from 43-46 per cent to just 20-25 per cent. Both these stocks pidepipered other technology shares also with most posting losses to the tune of 15-17 per cent on Thursday afternoon. This “knee jerk reaction” was a bit reversed on Friday when some of the stocks like BFL Mphasis, Mastek, Hughes Software etc. closed above their previous closing prices though Infosys, Satyam and Wipro are still in the red. Well! it is a million dollar question. Yes, one thing is sure: the market is “re-rating” the Infosys stock with its “premier tag” in question in view of downgrading of its growth estimates. Analysts do not want to accord a high growth P/E multiple of 28.8 particularly at a time when the company expects to grow by just 11-12 per cent in its bottomline growth since the company is facing heightening pricing pressure due to high degree of competition from global IT services players, freezing client visits to its campuses on account of SARS virus, heavily depending on US economy which is still in the throes of recession and prevailing uncertainty on account of Iraq war. The analysts are not enthused with the armoury which Infosys can use against the onslaught of the above mentioned events. This resulted in ruthless price fall of the scrip which is still facing pressure on the bourses. Despite this dramatic carnage on the counter investors must not forget that Infosys has excellent track record and apt management to bounce back once the cloud of uncertainty due to geo-political disturbances are cleared and the company will most likely regain its lost sheen. However till this happens or unless there is significant change in the external macro environment, conditions will remain tough atleast in the short run. But investors must not sell in panic. They should be patient enough and wait for an upside correction which will give them an opportunity to pare down their holdings in Infosys particular since everything is not lost. There are certain positive tools. Infosys expects that the price decline in billing rates after June 03 will be less steep then that in quarter ending June 03. And in order to protect its margin the company will take measures to reduce expenses particularly sales and marketing as a percentage of total expenses by 100 basis points. Apart from this benefits in the form of lower depreciation and tax provisions would also help. On the revenue front Infosys will continue to concentrate on its core business of software development and maintenance, a greater amount of attention will be devoted to re-engineering and package implementation. Another pertinent question which haunts the minds of millions of investors is whether it will affect the valuation of other IT companies? Well to some extent it can. But certainly some niche players like Hughes Softwares, I-Flex Solutions, BFL Mphasis will stand shoulders above turbulent waters and will tend to outperform the IT index. In view of this re-rating of Infosys counter the mutual funds are also reshuffling and re-aligning their portfolios giving way to old economy sectors like Petrochemical, Banking, Steel, Power, Pharma and Autos. One interesting fact to note is that in spite of this massive crash in the Bombay Stock Exchange index by 143.38 points in just two trading sessions the old economy stalwarts like Reliance, Telco, Tisco, ITC, SBI, Nestle, Grasim, Hind Lever, ACC have held firm on the bourse. Infact Reliance rose by Rs 4.55, ITC by Rs. 15.15, SBI Rs. 3.65, and alike. This amply reflects the higher percentage of weightage Infosys has on the BSE Index. Investors should take a cue from this development and give weightage to these stocks in their portfolios. In IT sector specific stories are still intact like Hughes Software, which has recently won a deal of 30 million dollars from Lucent Technologies. Investors with risk taking capacity can take up Hughes Software in their portfolio provided they can withstand huge volatility in its price behaviour. Another sector looking promising is banking for the medium term as the sector is expected to announce quantum jump in its earning numbers in view of rising prices of govt. securities which they have been holding in their portfolios; and secondly cheap credit has lead to its higher off take resulting in higher income. Scrips like OBC, Canara Bank, Bank of India are in lime light. The Steel sector is still looking promising. Tata Steel, Jindal Iron & Steel both are expected to come out with excellent results for the quarter ending March; and investor should take this opportunity to add these in their portfolios. In the auto sector Telco and M&M are expected to continue to do well with their good quarter numbers. Power stocks like ABB, which has recently announced very good results with first quarter profits up 41 per cent and revenue up 19 per cent are expected to remain in the limelight. However, investors must be cautious in the weeks ahead as results of many companies would start pouring in which will lead to a lot of volatility on the respective counters. Stocks often tend to move up in anticipation of good results and then undergo correction after the results are announced. Investors are advised to take entries only on corrections and not be carried away simply by powerful results.
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Reducing the burden of taxation Government plans for accelerating the growth rate as envisaged in the Tenth Plan are not showing the desired results. Dr Kelkar proposals for a rationalised tax structure not finding much favour with political circles, Mr Jaswant Singh, was left with no option but to bring a please-all Budget under tremendous political compulsions. Funds are the backbone for the successful implementation of any development plans. Be it infrastructure development or creating millions of jobs for the jobless, the plans need ample financial backing. Kind of freebies and subsidies offered to the different sections of the society that too, on the cost of a deficit Budget, cant explore favourable outcome on the economic front. It is not that the benefit of these freebies and subsidies is transferred to the needy and public at large. Most of these are being cornered by a few rich and privileged section of the society. For example, the so-called schemes of offering free electricity to the farming sector in Punjab till recently ad hardly benefited any poor farmer as they being not able to afford a tubewell of their own, had to fetch water from the source of rich farmer at a cost. The incentive of free power, on the other hand, was being enjoyed by rich farmers by lavishly consuming power on a number of ACs installed at their farm houses. Income tax holiday to the farm sector is another loophole provided to the rich land owners, bureaucrats, politicians and businessmen to steer clear their unaccounted black money. A policy to plug this loophole, while maintaining a cover to the genuine farmers, is need of the hour. In addition to bringing the vast agriculture sector into the tax net in a phased manner, other obvious grey areas — mostly professionals and largest section of the society of tax evaders — must have to be tapped to make the taxation broad based. Taxes are the source of income for a nation. The money so generated is spent upon the overall development of the country — defence, development of infrastructure such as roads, highways, railways, dams, bridges, power plants and communication, etc. — which in turn generate employment. In better economy, the taxation process has to be broad based, bringing the maximum number of citizens into the tax net and to make them contribute as per their respective share to the national booty so as make every citizen uniformly burdened making the taxation rational and the evasion less attractive. Going by the statistics the world over, estimated figures reveal that in Australia 43 per cent and in Canada 48 per cent of the total population are the tax payers and whereas in America, barring non-earning students and senior citizens, remaining entire population comprising of 62 per cent of the total Americans pay income tax. So much so, even the students earning while learning have to be deducted tax at source at on their earnings. But in India the number of tax payers has hardly touched 2 per cent of the total population that too after implementing the well publicised 1/6 scheme. Is in not injustice to the 2 per cent to bear the burden of whole of the country? Just on another day I was told by one NRI that in 2001, just before the 9/11 event, every taxpayer in the USA was given a bonus of $300. That could not be made possible if the countrymen come forward for voluntary compliance to pay taxes. Certain incentive schemes may be floated to attract the taxpayer for voluntary compliance. How about introducing a pension scheme for senior citizens other than salaried class during their old age so that after paying tax whole of their life they besides feeling privileged may also have a feeling of security about their lien period of life? The pension amount may be fixed depending upon the average tax paid by the taxpayer over the years. Other incentives may include introducing certain provisions in the Constitution to accord a special status to the income tax payers in the society — such as out of turn quota for their children in educational institutions, special treatment at medical institutions and other services like railways. A fear psyche persisting in the minds of taxpayers due to kind of harassment meted out to them at the hands of taxation staff should be replaced with friendly treatment, even at the time of raids. It is regretted that policymakers usually have the sole aim at revenue collection in the name of simplification of policies. For example, while replacing octroi in Punjab with LADT, the Government’s main aim was to increase its revenue from 0.5 to 2 per cent. Similarly in case of VAT, the authorities, in the name transparency and simplification, have concentrated to pocket multifold revenue in addition to throwing the business sector to wolves by giving extraordinary powers to inspectors. As per proposal the tax rates will jump some where from 45 to 100 per cent on variety of consumer items. Goods will become costlier on each subsequent sale, making the small trader hard to survive in face of the obvious competition. Was the system contemplated to give free movement of goods from one state to another by providing hassles-free and uniform tax structure by replacing the existing sales tax regime of various states or to make businessman and in turn consumer to pay through their nose besides encouraging corruption at working level by giving unlimited powers to the inspectors? Deferred for the time being in the face of stiff resistance from the business sector in the affected states, the system as such needs to be amended for uniform taxation without affecting any increase to the existing taxes, with minimum of red tapism and free from all kinds of hassles. The process of rationalisation and reforms at all levels of policies, if envisaged with pragmatic approach having the public welfare in mind, will definitely bring down burden of heavy taxation besides giving a substantial increase in revenue collection to the state exchequer. With evasion ceasing to be less attractive, uniform sharing of tax burden by the citizens and increase in revenue, the country may look forward to an upswing in the economy without any foreign help. No doubt, if the things are worked at the top political and bureaucratic level, the main policy makers with an earnest will and determination to deliver, the country may be soon at the door step of becoming a world power.
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Inflation touches 2-year high at 6.24 pc
New Delhi, April 13 Price level also rose 0.25 per cent from 5.99 per cent in the previous week as prices of primary essential items started rising after the drought-hit kharif and flat rabi harvests. The final inflation rate was 5.29 per cent during the week ended February 1, as against the provisional figure of 4.86 per cent, while the final WPI was at 169.1 points compared to provisional 168.4 points. Economists relate the surge in prices to the war in Iraq, which resulted in rise in international oil prices since January and input costs of the manufacturing sector. Coupled with this, industrial recovery and the capacity constraints resulted in rise in manufactured product prices, Subir
Gokarn, Crisil Chief Economist, said. PTI
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FIIs’ net buyers in equities
Mumbai, April 13 According to the data available with SEBI, FIIs recorded the highest net investment in equities on April 8 at Rs 95.3 crore, followed by April 9 at Rs 64.1 crore. They were net sellers in equities on April 10 at Rs 11.2 crore. FIIs were net buyers in debt only on April 8 at Rs 49.3 crore, while they were net sellers at Rs 73.2 crore on April 7 and at Rs 24.4 crore on April 9. The SEBI data also shows that mutual funds (MFs) witnessed net purchases in debt at Rs 402.92 crore during the week and net sales in equity at Rs 50.52 crore. They witnessed highest buying in debt on April 8 at Rs 209.03 crore and highest sale in equity on April 7 at Rs 26.97 crore.
UNI
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Markets closed
Mumbai, April 13 |
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by Lalit Batra Stock markets look weak Conservative guidance for the current fiscal by software major Infosys led to a virtual bloodbath on the bourses on Thursday and Friday. The 30-share BSE Sensitive Index settled with a loss of 169.83 points, below the 3,000-mark at 2, 997.87. The extent of loss would have been much more had the old economy stocks like HLL, Ranbaxy and SBI not held their ground. The “BSE IT Sector Index” crashed by a whopping 27.87 per cent to end at 1,004.99. The market, which was banking on guidance from Infosys Technologies to set its future direction, was jolted by the muted guidance put forward by the company. The company has projected a top-line growth of 21.6-23.6 per cent and a bottomline growth of 11.3-12.7 per cent on a year-on-basis. The US economic recession, challenging external environment, pricing pressures on outsourcing deals, competition and uncertainty due to the incidence of the SARS disease as also the US-Iraq war have been cited as responsible for the muted earnings guidance from the software Bellwether.
Hero Honda Hero Honda Motors firmed up on the renewed buying support after the company announced a dividend of 900 per cent (Rs 18 per cent share on the face value of Rs 2 per share) and better-than-expected quarterly results. For the quarter ended March 31, 2003, the motorcycle major posted a net profit of Rs 148.96 crore (Rs 152.56 crore) on a total income of Rs 1,248.20 crore (Rs 1,285.69 crore in the last quarter of previous year). Though the two wheeler major has come out with better-than-expected results, it would be prudent to wait and watch the company’s performance for the next two months before buying into the stock. The company on its part has also not provided any guidance for the coming quarter.
ABB The first-quarter results of Asea Brown Boveri were much above the street’s expectations. The company reported a 19 per cent increase in sales to Rs 290 crore and a net profit of Rs 8.80 crore (up by 41 per cent). Though the company’s share price has already appreciated by 40 per cent in the last five months, there is further potential for another 20-25 per cent gain in the next one year. The much-awaited Electricity Bill has been passed in the Lok Sabha. The Bill is expected to engender an improvement in the health of State Electricity Boards (SEBs). It will also give a big boost to the power sector, as it is a comprehensive legislation putting together all the legislative measures required for pushing the power sector onto a trajectory of sound commercial growth. It also envisages a competitive scenario, where regulators, on the one hand, and private power utilities on the
other, play increasingly significant roles. All this bodes well for ABB, and investors can light up their
portfolio by adding this power-packed scrip to their portfolio.
Forecast On Technicals: The sensex (BSE Sensitive Index) has closed below the psychological support of 3000. The next support for the sensex is at the 2940-2960 range and the market may attempt to bounce from this range. A bounce could see the index moving upto 3025 or even 3065. A close below 2940 would be a sign of weakness and the index could witness a sharp fall. Nifty has support in the range of 924-935. On Fundamentals: The market may not recover in the near-term as the selling spree will spread to other sectors with players trying to offset their losses by offloading non-Sensex stocks. The US markets are also displaying weakness as they assess the cost of the Iraq war. This may lead to a near term weakness in India’s markets.
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by Pushpa Girimaji Notice of loss to transporter must Here is a note of warning to all those who transport their goods through common carriers: if your goods are lost or damaged during transit or the transporter fails to deliver them, make sure that you send a notice of loss or damage in writing to the transporter within six months. Failure to do so would take away your right to seek redress even before the consumer courts constituted under the Consumer Protection Act. A recent order of the National Consumer Disputes Redressal Commission has made two things clear: one, the Carriers Act is applicable to complaints filed under the Consumer Protection Act and two, as per Section 10 of the Carriers Act, it is mandatory for a consumer to issue a notice of loss or damage to the carrier. A complaint filed against a common carrier without fulfilling this requirement would not be maintainable, the apex consumer court has said. (Delhi Assam Roadways Corporation vs B.L. Sharma, first appeal no 107 of 2001). Even though the Consumer Protection Act provides for relief against deficient services, the consumer in this case was denied compensation for the loss of household goods entrusted for transportation to the carrier, only because he did not send a notice as required under the Act. In other words, the Carriers Act and its applicability to the Consumer Protection Act in this case took away the consumer’s right to redress given under the Consumer Protection Act. On his transfer from Mumbai to Visakhapatnam, Mr Sharma, a naval officer, engaged Delhi Assam Roadways Corporation for carrying his household goods. The goods not only took five days longer than promised to reach, but also when they arrived, Mr Sharma found two packages missing and two cartons empty. He got the statements of the driver and the cleaner of the lorry to confirm this and subsequently contacted the Carrier in Mumbai, who promised to pursue the matter. When they failed to act, Mr Sharma sought the help of the Andhra Pradesh State Consumer Disputes Redressal Commission to recover the cost of the missing goods which included a colour television set and a video cassette player. The State Commission directed the cargo carrier to pay Rs 1,20,680 along with 12 per cent interest to Mr Sharma. It also awarded Rs 10,000 towards mental agony and suffering and Rs 5,000 towards costs. The road carrier filed an appeal before the national commission, contending that firstly, no liability could be fastened on the carrier because of the condition printed on the consignment note which said: “unless otherwise agreed, all goods are accepted for carriage by road and rail entirely at the risk and the responsibility of the owner or consignee or consignor thereof”. The carrier also pointed to Section 3 of the Carriers Act, which limits the liability of the common carrier in respect of certain articles mentioned in the schedule of the Act and argued that the goods that were lost came under that list. The corporation also referred to Section 6 of the Carriers Act, which provided for limiting the liability of the carrier through a special contract, signed by the owner of the goods or a person authorised by the owner. It also pointed to Section 10, which said “no suit shall be instituted against a common carrier for any loss or injury to goods entrusted for carriage, unless notice in writing has been given before the institution of the suit and within six months of the time when the loss or injury first came to the knowledge of the plaintiff.” The apex consumer court dismissed the first three contentions. The commission said: “To print on the goods receipt that the goods are being carried at the owner’s risk has no meaning. To limit the liability under Section 6 as well, there has to be a special contract. No such special contract has been produced or even brought to our notice”. It also pointed out that Under Section 8, a common carrier was nevertheless liable where the loss or damage had arisen from any criminal act of a carrier or any of his agent or servant. Under Section 9, it was not necessary for the person who delivers the goods to the common carrier, to prove negligence or criminal act on the part of the carrier or its agent or servant. The commission also made it clear that the goods that were lost were household goods and did not come under the schedule of the Act. On the fourth contention however, the commission referred to two Supreme Court decisions wherein the apex court had held that Carriers Act was applicable to a complaint under the Consumer Protection Act, 1986. “That being so, it was mandatory for the respondent (Mr Sharma) to issue a notice as required under Section 10 of the Carriers Act. This having not been done, the complaint was not maintainable”, the commission said. So barring the award of Rs 10,000 paid towards mental agony on account of delay in transporting the goods, it set aside the order of the state commission awarding damages to Mr Sharma.
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