Infosys Takes The Cake
The current week was an action-packed one for the Indian benchmark indices as a host of macro data along with Q3 earnings from the IT bellwether were released. The disappointing macro data was well-digested by a heart-warming performance by Infosys in Q3FY22. On the macro front, India’s industrial output on the basis of Index of Industrial Production (IIP) slowed to 1.4 per cent in November 2021 compared to 3.2 per cent in October. Though the growth was there on YoY basis, it was the lowest in nine months.
On other hand, the inflationary monster is showing no signs of abating as retail inflation for the month of December rose to a five-month high of 5.59 per cent versus 4.91 per cent MoM and versus 4.59 per cent YoY. The main culprit for surge in the CPI is the food inflation as it grew by 4.05 per cent versus 1.87 per cent MoM. The RBI has been mandated by the government to keep retail inflation at 4 per cent with a margin of 2 per cent on either side, which means virtually we are now at the upper side of this margin.
The market participants have taken this discouraging data with a pinch of salt as the biggest headline which is helped to aid sentiments on D-Street was India’s top three IT software companies reported strong third quarter numbers with Infosys reporting stellar numbers beating street expectation. This is despite the seasonal adversity for the Indian IT services sector where the third quarter of the financial year is usually weak due to fewer billable days caused by higher holidays around Christmas and New Year.
Infosys posted a 12 per cent YoY rise in its consolidated net profit at Rs 5,809 crore. Revenue from operations increased nearly 23 per cent YoY to Rs 31,867 crore – more than these numbers the market is sure to be thrilled with its revenue guidance for FY22. It upgraded its revenue guidance to 19.5-20 per cent as against the earlier estimated growth at 16.5-17.5 per cent in constant currency. That’s why they call Infosys as the stock for all seasons. Be it in good time or bad times, Infosys always tends to perform. The undertone of the Indian benchmark indices too has been somewhat similar; be it good news or bad news the only thing the markets know is to scale higher.
The good news has resulted into a gap-up opening while the initial knee-jerk caused by bad news has been bought and as a result, the Nifty index has gained 5 per cent on a YTD basis and the Nifty has outperformed Dow Jones, Nasdaq, S & P 500 and China’s Shanghai Composite. Meanwhile, the broader market indices, Nifty Mid-Cap 100 and Small-Cap 100, have performed in line with the benchmark indices – a clear indication that the current rally from the December lows has been a broad-based rally. The overall technical structure shows that the markets have a solid and strong underlying current.
This would mean that in the coming days even if there is some volatility caused by bad news, the downside move would continue to stay limited. It is expected that a risk-on flavour is likely to continue and we might see the index heading to its all-time high before the Union Budget. Meanwhile, talking about the sectoral performance, we feel that Nifty Metals, Nifty Bank, Nifty IT and Nifty Pharma may relatively outperform in the coming weeks. Furthermore, the broader markets are likely to continue to perform well. In the event of any consolidation which may be just a range-bound one, it is recommended to avoid aggressive shorts. In fact, any such consolidation should be used as an opportunity to make select purchases.
