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Informist, Thursday, Jul 18, 2024

By Anshul Choudhary

MUMBAI – Sharp gains in shares of information technology companies lifted benchmark indices from their early fall and pushed them to fresh lifetime highs today. The Nifty 50 crossed 24800 points and the Sensex crossed 81000 intraday for the first time today, led by the rise in IT stocks and some index heavyweights.

IT stocks were in high demand today as the June quarter earnings so far have reinforced investors' view that the worst is likely behind for the sector. "Revenue growth for several companies such as TCS (Tata Consultancy Services) and LTIMindtree has been above consensus with early signs of improvement visible... we expect earnings of (IT) companies to return to normalised growth of 6-9% in FY26 (2025-26)," a fundamental analyst with a top domestic brokerage said.

Today, benchmark indices opened lower amid concerns in global markets that the US might consider tighter trade restrictions against China. But, domestic indices recovered soon. The Nifty 50 and the Sensex closed 0.8% higher each at 24800.85, and 81343.46 points, respectively. Both indices ended the session at their highest closing levels. Apart from IT stocks, shares of fast-moving consumer goods, select banks and financial companies rose. 

Shares of LTIMindtree were the top gainers among Nifty 50 constituents after its revenue growth surpassed expectations, helped by a ramp-up in large deals. On Wednesday, the company said its consolidated revenue rose nearly 3% sequentially to 91.43 bln rupees, higher than analysts' estimate of 90.83 bln rupees. At the post-earnings call, the management was confident that they would be able to maintain the current momentum in Jul-Sep as well.

Nirmal Bang Institutional Equities upgraded the stock to 'accumulate' from 'sell'. "LTIMindtree started 1QFY25 (Apr-Jun) with a positive note on the back of macro demand bottoming out, faster ramp-up of deal wins, better client budgets and improvement in client’s willingness to spend," Nirmal Bang said in a note today. The brokerage raised its target price for the share to 5,849 rupees from 3,978 rupees earlier.

Among IT companies, shares of LTIMindtree rose 3.5%, while those of Tata Consultancy Services and Wipro rose 3.3% and 2.4%, respectively. Owing to this, Nifty IT closed 2.2% higher. Shares of Infosys were up nearly 2% ahead of its Apr-Jun earnings, which came after market hours.

The gains in information technology stocks come after a tepid 2023-24 (Apr-Mar), when earnings were impacted due to weak demand for IT services globally. Going forward, it is widely expected that demand for the sector, especially in the banking and financial segments, will improve once interest rates come down in the US. The recent inflation numbers and data from the US labour market have reinforced the expectation that the US Federal Reserve may cut rates in September.

Apart from IT stocks, shares of fast-moving consumer goods companies continued to rise on expectations that the government may announce some measures to support consumption in the Budget on Tuesday. Shares of Hindustan Unilever rose 2%, while those of Tata Consumer Products ended 1.5% higher.

Shares of automobile companies began the session on a weak note as expensive valuations pushed investors to book profits. However, shares of some of the companies bounced back later, with Mahindra & Mahindra rising 2.3%. Shares of Bajaj Auto fell nearly 1% despite the company announcing higher than expected net profit in Apr-Jun. Bajaj Auto announced its earnings during market hours on Tuesday.

Index heavyweights such as Reliance Industries and ICICI Bank recovered from early losses and ended higher, aiding gains in benchmark indices in the second half of the session. Shares of financials such as Bajaj Finserv and SBI Life Insurance closed over 2% higher each. Shares of Oil and Natural Gas Corp continued to witness gains, aided by comfortable valuations, to end the session nearly 3% higher.

On the downside, shares of Asian Paints closed over 1% lower. Its shares were down as much as 4.5% at one point after the company's net profit in Apr-Jun came in significantly lower than expectations. The company's net profit fell 24.5% on year to 11.7 bln, sharply lower than the consensus estimate of 14.07 bln rupees. The company's volume growth and margins for the quarter were also lower-than-expected. As a result, some brokerage firms cut the company's earnings estimates for the current and upcoming financial years, while a few trimmed the target price for the stock.

Asian Paints results missed estimates as a result of a weak product mix, unanticipated material cost pressure, and a sharp increase in staff costs owing to an increase in headcount, Nirmal Bang Institutional Equities said in a report. The brokerage maintained its accumulate rating with a target price of 2,915 rupees.

The broader market indices underperformed benchmark indices amid profit-booking in mid-cap and small-cap space. The Nifty Midcap 150 and Nifty Smallcap 250 fell about 1% each.

Capital goods stocks were the worst hit as high valuations pushed investors to book profits. These stocks have risen sharply in recent months on a strong order pipeline from the government, providing them with revenue visibility. However, expensive valuations have led to several analysts raising concerns, with some even asking investors to refrain from fresh buying. The BSE Capital Goods index fell 2% today.

Profit booking was seen in railway and defence-related stocks also. Shares of Hindustan Aeronautics fell 5.9% and Data Patterns declined 4.6%. Shares of some ship-building companies also fell over 4%, while those of Titagarh Rail Systems, Rail Vikas Nigam, and RailTel Corp of India fell over 5% each.

Shares of Zee Entertainment Enterprises fell over 8% on concerns that the company's plans to raise funds through bonds will increase its interest costs. The company's board on Tuesday approved issuing foreign currency convertible bonds of up to $239 mln. The fund-raising has raised concerns regarding interest costs, which can be approximately 1 bln rupees, said Jinesh Joshi, a research analyst with Prabhudas Lilldher in a note. There is no clarity yet regarding the deployment of funds. Joshi, however, retained "hold" rating on the stock with a target price of 160 rupees, saying that interest costs will not hit the company from day one, but will be staggered depending upon the frequency of tranche withdrawals.

* Of the Nifty 50 stocks, 35 rose and 15 fell

* Of the Sensex stocks, 22 rose and 8 fell

* On the NSE, 932 stocks rose, 1,793 fell, and 66 were unchanged

* On the BSE, 1,424 stocks rose, 2,500 fell, and 92 were unchanged

* Nifty IT: up 2.2%; Nifty FMCG: up 1%; Nifty Media: down 3.6%

BSE                                               NSE
Sensex: 81343.46, up 626.91 pts or 0.8%           Nifty 50: 24800.85, up 187.85 pts or 0.8%        

End

Edited by Saji George Titus

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