InfoSys shows the Sensex the Rupee / Dollar Impact

The Infosys guidance for FY08, based on the rupee-dollar exchange rate of Rs 40.58, may not hold good. With continuing foreign inflows in the form of foreign direct investment (FDI), equity investments by foreign buyers and remittances by NRIs, the rupee is likely to strengthen further. The domestic currency could appreciate in the medium term to around Rs 39-39.50 on unabated dollar flows and the Reserve Bank’s inability to stem the flow. The rupee is forecast to appreciate by around 2.7 per cent.
Indian Rupee / US Dollar impact on the Sensex Index of Indian Stocks...GOLD
With the FII inflows into the Indian markets expected to cross $15 billion in the current calendar year, there is talk of raising the FII ceiling. The government is also under pressure to increase the FDI limit in the services sector. It is also believed that the RBI may not support the dollar.

Infosys’ strength is its ability to reduce the operational cost and the huge cash balance of Rs 6,400 crore. The tax reversal of Rs 51 crore and a 300 basis points savings in selling and general administration expenses (S&GA) have prevented the company from faltering on EPS expectations.

Meanwhile, analysts are disappointed with the Infosys’ guidance for the year. The company raised its revenue growth guidance in dollar terms by a mere one per cent to 31, though it normally registers good growth rates in the June and September quarters and ups its guidance during this period. The stock plummeted by 4.5 per cent after the results were announced.

Infosys Technologies could not achieve the sales target set for the first quarter of 2007-08 as rupee appreciated higher than expectations. The company’s guidance for the first quarter was based on the rupee-dollar conversion rate of Rs 43.10, though the rupee averaged at Rs 41.22 a dollar.

Naturally, the company could not achieve the Q1 sales target of Rs 3,896-3,913 and reported a decline of 3.2-3.6 per cent to Rs 3,773 crore.
Infosys Technologies — the poster boy of India’s software services industry — beat market forecasts with an almost 35 per cent leap in net profits at Rs 1,079 crore during the first quarter ended June 30 compared with the year-ago period.

But on a sequential quarter basis, its net profit actually tumbled 5.8 per cent from the Rs 1,145 crore recorded in the fourth quarter of fiscal 2006-07 that closed on March 31.

A surging rupee, growing wage bill and rising visa costs wrecked the first quarter forecasts that the company put out in early April and badly crimped its margins — a fact that weighed on the market which clobbered the stock and sent it skidding almost 5 per cent to Rs 1,929.70 at the end of a volatile day of trading.
Mumbai, July 11: The Sensex today crashed by 99.26 points on the Bombay Stock Exchange (BSE) to settle below the 15,000 mark at 14,910.62 on account of selling pressure in information technology, auto and banking scrips and negative cues from southward-bound global indices.

''The market stayed weak throughout the day’s trading, except for the odd surge in early afternoon trade, as selling pressure continued for index pivotals. All the global markets were in the red, with the odd exception of Shanghai Composite,'' market analysts said.

IT stocks played the spoilsport after IT bellwether Infosys Technologies today cut its financial year (FY) 2008 earning per share (EPS) and revenue guidance in rupee terms while announcing first quaterly (Q1) June 2007 results. Shares from auto and banking pack also saw some profit booking. However cement, metal and oil exploration stocks outperformed, the analysts said.

After opening weak at 14,948.15 from it's previous close of 15,009.88, Sensex touched an intra-day high of 15,015.35 and a low of 14,829.55.

Among the broader markets, the National Stock Exchange (NSE) Nifty Index also tanked by almost 19 points to settle in the red at 4,387.15 from it's previous close of 4,406.05, after opening weaker at 4,403.80 and moving between 4,411.45 and 4,344.70 during the day's session.

BSE data revealed that the Sensex swung 186 points in a day of volatile trade. The total turnover amounted to Rs 5,473 crore. Among the 30-scrip Sensex pack, 18 declined while the rest advanced.

Analysts pointed out that IT pivotals saw intense selling pressure right from the opening bell. Four of the top five losers from the Sensex were IT stocks.

''IT bellwether Infosys Technologies slumped 4.65 per cent to Rs 1,926, on high volumes of 15.32 lakh shares. It was the top traded counter on the BSE with turnover of Rs 298.55 crore. It was the top loser from the Sensex pack,'' market pundits noted.

The company today revised upwards its EPS guidance for FY 2008 (year ending 31 March 2008) in dollar terms to a growth of 28.4 per cent to 29.7 per cent compared to the earlier guidance of 25.7 per cent to 27.7 per cent growth. It has also slightly raised the revenue guidance in dollar terms to 29 per cent to 31 per cent, from the earlier guidance of a growth of between 28 per cent to 30 per cent.

EPS guidance in rupee terms has been cut to reflect a growth of 15.6 per cent to 16.8 per cent compared to the earlier guidance of 20 per cent to 22 per cent growth. It has also reduced the revenue guidance in rupee terms to 16.9 per cent to 18.3 per cent, from the earlier guidance of a growth of 22.6 per cent to 24.6 per cent.

Infosys' consolidated net profit as per Indian GAAP was down 5.6 per cent to Rs 1079 crore in Q1 June 2007, from Rs 1,144 crore in Q4 March 2007. Revenue was almost unchanged at Rs 3,773 crore in Q1 June 2007 compared to Rs 3,772 crore in Q4 March 2007.

The other main laggards were Satyam Computers, TCS, Wipro, Tata Motors, Mahindra & Mahindra, Maruti Udyog and ICICI Bank The major winners were Tata Steel, ACC, UltraTech Cement Company, Birla Corporation, Grasim, Reliance Energy (REL), Dolphin Offshore, Aban Offshore, Selan Exploration and SEAMEC.

Foreign institutional investors (FIIs) bought shares worth nearly Rs 583.02 crore, while domestic institutional investors (DIIs) were net sellers of shares worth approximately Rs 206.70 crore during the last trading session.
The company, which earns 98.2 per cent of its revenues from outside India, topped its dollar guidance for the quarter earning revenues of $928 million against the April forecast of $904-908 million — and put it well on course to meet its target of emerging as a $4billion company by the end of this fiscal.

But its rupee guidance went awry: it earned an income of Rs 3,773 crore against the forecast of Rs 3,896 crore to Rs 3,913 crore.

Infosys, which earns 62.6 per cent of its overall revenues from the US, was forced to raise its dollar guidance for the second quarter and the full year ended March 31 next year, but trimmed its rupee guidance figures for both.

“It is surprising that Infosys raised the bar on full-year revenue growth in dollar terms by just 1 per cent to 31 per cent year-on-year at the upper end against 30 per cent earlier,” said CLSA in a report. “The tepid rise in the dollar guidance implies that while demand is good, there is a serious dis-connect between what the street interprets as strong demand and what the company is seeing on the ground.”

Infosys pared its full-year per share earnings forecast to Rs 78.20 to Rs 79 based on an exchange rate of Rs 40.58 per dollar, from Rs 80.29 to Rs 81.58 estimated in April that had assumed the rupee at 43.10.

In dollar terms, it raised full-year guidance to $1.92 to $1.94 per share from $1.86 to $1.89 forecast in April.

“The sharp appreciation of the rupee against all major currencies impacted our operating margins during the quarter,” chief financial officer V. Balakrishnan said. However, the firm had still been able to charge higher rates from new customers.

Its operating margin fell to 24.9 per cent in the June quarter from 27.8 per cent in the previous three months ended March.

Balakrishnan, who expects the rupee to be volatile in the short term, said Infosys had hedged $925 million at a rate of Rs 40.58 a dollar, and may increase hedging.

“We are not seeing any concerns on the ground. Volume growth continues to be strong,” he said. “We will be able to maintain the net margins for 2007-08 in spite of the rupee moving against us.”

Managing director and chief executive S. Gopalakrishnan said demand for the firm's services remained strong, enabling the company to add 35 new clients in the June quarter and 3,730 employees on a net basis. It reported an attrition rate of 13.7 per cent over the last 12 months — almost two percentage points higher than the 11.9 per cent it reported in June last year.

The company said it would hire 26,000 people in the year to March 2008, up from about 23,000 it had forecast in April.

Wages in the sector are also rising by about 10 to 15 per cent a year, compared with 2 to 6 per cent in the West.
GOLD UPDATE

Gold prices are likely to remain bearish this week on rising rupee and lower lean season demand, analysts said.

The rupee could weigh on gold this week if it continues to stay close to its nine-year high against the dollar, they said.

The partially convertible rupee ended at 40.425/44 per dollar, up from Friday's close of 40.46/47, and moving towards a nine-year high of 40.28 hit in late May.

Rising crude oil prices might, however, prevent the yellow metal falling sharply, analysts said. "Gold prices are locked in between the trends of crude oil and forex market," said Debjyoti Chatterjee, analyst with The Commodity Research.

In domestic market, prices could remain choppy on a stronger rupee, but gain from a rise in crude prices, he added.

Analysts said the metal needs fresh impetus to break its downward streak. "On the whole the chief factor that is not letting prices go up is that not much buying is coming in and the physical market is witnessing flat demand," said Sahil Kapoor, analyst with Kotak Commodity Services Ltd.

Demand is likely to continue being weak until August, when a string of festivals till the end the year would put people in a buying mood, said Alex Mathews, analyst with Geojit Financial Services Ltd.