It was a double whammy for the markets today as Infosys fourth quarter results were below analysts' estimates and inflation for the month of March surpassed the Reserve Bank of India target of 8% raising expectations of further rate hikes.
Markets gave up most of the gains made in previous session as traders’ dumped frontline IT shares after Infosys reported 17% jump in net profit y-o-y, trailing street expectations. Infosys dragged the Sensex down by 200 points and Wipro and TCS contributed to another 30 points slide. The Sensex was down 300 points, at 19,396 and the Nifty declined 84 points, at 5827 at 14:30 hours.
Shares in Infosys sinked 9.5% falling below Rs 3000, the stock was hovering around Rs 2,995 at 14:30 hours. The company's net profit was up 17.1% at Rs 1,818 crore compared to Rs 1,552 crore in the corresponding quarter last fiscal. On a sequential basis its net profit was up by 2.1%.
The management said fourth quarter is generally soft; business environment was improving slowly, but pricing environment is expected to remain muted. The management is looking at optimizing operations and is hiring 45,000 people in FY12. However, management added that currency fluctuations remain a concern.
EBITDA margins fell to 29% versus 30% reported in the previous quarter, analysts expect Infosys margins to be under pressure going forward. Gaurang Shah, AVP, Geojit BNP Paribas Financial Services said, "the margins were under pressure because of retention of good man power and cross currency fluctuations. Going ahead, they will remain under pressure if QE2 review turns negative, which will put Euro and Dollar under pressure. In such a case, the Rupee will appreciate."
Inflation accelerated the RBI target of 8% in March which may prompt the Reserve Bank of India to tighten further in the upcoming policy review on March 23rd. Rising prices of vegetables and manufactured items drove the headline inflation to 8.98%. The overall inflation measured on the basis of Wholesale Price Index (WPI) was 8.31% in February.
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Options writers squared of their put positions after the Infosys results." Shshank Mehta, Derivatives Strategist, Nirmal Bang said. "A lot of put writing was observed at 5,900 and 6,000 strike prices; put writers who had a bullish stance were squaring off."
IT shares were the top sectoral losers, Infosys was down 10%, Wipro declined 5%, and TCS dipped 1.7%. Only 6 components on the Sensex were trading in the red, Hero Honda gained 3.5%, Bharti Airtel was up 1.7% and Bajaj Auto advanced 1%.
Even Realty shares were leading the losses, DLF was off 3%. D B Realty declined 3.5% and Ackruti City fell 4%. Top losers on the Sensex were ICICI Bank, down 2.5%, Hindustan Unilever fell 2.1% and Maruti Suzuki was off 1.5%.
Broader markets were also weak, the midcap and smallcap indices were down 0.3% and 0.2% each. Market breadth was negative, 1625 stocks advanced for 1217 shares which declined.