Infosys: Which side will the camel sit?

Percentage of delivery-based shares hits lowest since Q1 result announcement; Infosys ADRs up 2% on NYSE

A day before India’s information technology (IT) giant Infosys is to announce its second quarter results, traders have chosen not to take high deliveries of shares. As Infosys shares gained 53 basis points or Rs 16.6 to close at Rs 3,124.15 on Wednesday, delivery-based quantity of stocks were at a three-month low at 42.3 per cent of the total traded shares on the stock exchanges. This is the second time in the past seven such occasions that traders have avoided taking high delivery just before the results.

Otherwise, on all other pre-result days, the delivery percentage stood anywhere between 55 and 66 per cent.

Although delivery to traded shares ratio of 40 per cent cannot be termed as low, it is quite a respectable level. The delivery-based trading in the past three months was in the range of 60-75 per cent. The lower percentage this time indicates market participants are maintaining caution.

Foreign institutional investors (FIIs) have already raised stake, albeit marginally, in Infosys in the quarter to 39.33 per cent against 33.55 per cent in the June quarter. Domestic institutions seem to have lost appetite for any further surprises from Infosys as they cut stake by more than a two percentage points to 16.18 per cent from 18.28 per cent in the previous quarter.

No matter how good the expectations and projections are about Q2 earnings among market experts, traders cannot forget easily the abrupt movement in Infosys stocks on the results day.

For example, four out of the last six such days, Infosys stocks have plunged in the range of 8-22 per cent.

Here some good news: With less than few hours to go before the Bangalore-based firm’s Q2 earnings goes public, the company’s ADR or American Depositary Receipts are trading two per cent higher at about $50.7 while those of Wipro were trading much higher at $10.8 or 3.6 per cent up.

If ADRs movement is any indication, chances are that the same or better could be replicated when Indian stock markets open for trade this morning.

Benefits on the back of a weak rupee and a relatively better economic data points from the US are likely to have its positive impact on Infosys' quarterly balance sheet. And most experts rule out negative developments.

Taking a lead from Infosys' steady session on Indian bourses on Thursday, strong opening of company's ADRs on NYSE and positive factors throughout the July-September quarter, Infosys may not throw negative surprises.

Can Infosys once again show abrupt upward intra-day movement — the way it had on Q1 results day of nearly 11 per cent — on Friday? Can it climb as high as Rs 3,400-3,500?

If it does, those chanting ‘re-rating’ of IT sector is in the offing will take a long break. A wait of a few more hours will reveal who took the right investment call.

Keep watching which side the camel sits this time.