IT Companies Showcase Earnings Season in Style
The Indian stock market is in the midst of one of its biggest bull runs to date. In just a little over 14 months, the benchmark indices have more than doubled and many stocks have seen their prices double or even quadruple since the March lows last year when sentiments had hit a nadir over concerns related to the corona virus pandemic and the ensuing nationwide lockdown. However, the unique part of this bull run has been the sector rotation. And this is what we saw during the phase of tight consolidation where the Nifty had moved in a range of only about 300-odd points and Nifty Realty took charge
If you may recall, we had mentioned about the momentum that Nifty Realty index would garner to give a quick up-move of 5-8 per cent in the near term. The realty theme has played out pretty well and in just about a week the index has gained nearly 10 per cent. Another sectoral index which has come back into the reckoning after a phase of breather is Nifty IT. In the last five trading sessions it has gained 3.37 per cent; the bulk of the gains have been witnessed in the last two trading sessions. Interestingly, the index has surpassed its previous all-time high and marked a fresh all-time high.
The quarterly earnings season has provided the muchneeded spark to the Nifty IT index. MindTree started FY22 on a strong footing amid strong first quarter growth and highest ever order book. For the first quarter, revenues were up by 7.7 per cent sequentially and an order book of USD 504 million was reported by the company. This acted as a shot in the arm for the mid and small-sized IT companies and as such many of the IT companies started to witness a lot of buying interest. After MindTree, all eyes were on the quarterly earnings of IT bellwether Infosys.
Interestingly, Infosys reported better than expected numbers in Q1FY22 and delivered another strong quarter, driven by strong demand across the verticals, strong deal wins and healthy deal pipeline and normalisation of economic activities. The company raised FY22 constant currency revenue growth forecast to 14-16 per cent from the earlier 12-14 per cent. Larsen and Toubro Technology Services (LTTS) also followed suit as the earnings were better than expected, driven by significant traction in client portfolio globally. It closed several multi-million dollar projects from global customers across various verticals.
The company raised FY22 USD revenue growth guidance as well. So basically, the IT companies look all set to continue their leadership. One of the big announcements made during the week was that the rebate of state and central taxes and levies (RoSCTL) on exports of apparel or garments and made-ups will continue as the Union Cabinet has given its approval. The RoSCTL will continue at the existing rates till March 31, 2024. This move has certainly brought some cheer in the textile-related stocks as it would provide a level playing field to exporters and boost Indian textile exports.
Meanwhile, Bank Nifty has also joined the bull’s party. It has gained 1.79 per cent in the last five trading sessions, thereby outperforming Nifty which has gained nearly 1.24 per cent. Interestingly, the index is placed at the cusp of breaking above the last 28 trading sessions’ range and if this breakout materialises it would be mean the markets would head higher towards the 16,250 level in the medium term on Nifty. The current bull market reminds me of a popular saying in sports that ‘the form is temporary, class is permanent’. The consolidation phase of the markets is temporary as it helps to cool off excessive exuberance and after a prolonged consolidation period the bulls start to march again.
