Infosys Profit Jumps 50%, Sensex Weathers Attacks

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July 11, 2006 | SIN Picks | | Author Asif

SINLetter pick Infosys Technologies Ltd. (INFY) reported strong quarterly results on July 12th, with earnings increasing 49.2% to rupees 794 crore ( ~ $172.6 million) from rupees 532 crore ( ~ $115.65 million) in the year ago period. Revenue grew an equally strong 45.6% to rupees 3015 crore ( ~ $655.43 million).

Infosys increased its full year revenue and profit guidance and now expects full year revenue and profit growth of around 40%. This is very impressive for a company that reported annual revenue of $2.15 billion last year. The company also plans to add 25,000 employees in 2006-2007, an almost 50% increase from its worldwide workforce of 52,000 at the end of fiscal year 2005-2006. Operating margins however dropped from 31.7% to 29.5% thanks to the double-digit wage expansion that most IT companies are facing in India. The 2:1 stock  split that was announced in June will take place on July 17, 2006 for shareholders on record as of July 14, 2006.

These spectacular results from Infosys helped the BSE Sensex weather the deadly Bombay (Mumbai) train attacks and the sensex was up 138.8 points as I write this post. With the exception of Infosys (INFY) and (REDF,) most other Indian ADRs such as Tata Motors (TTM) and Wipro (WIT) were down on the NYSE on July 11th following the news of the Bombay attacks.  Just like the markets bounced back after the London subway bombings and the 9/11 attacks, I expect the Indian market to bounce back after this setback. I bought into the 9/11 drop and if I see a big drop in the Indian market after these attacks, I will start buying again.

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  1. Anis Haroon
    January 13th, 2007

    The Bombay stock exchange (BSE) is riding the crest of a wave that has never been higher. The market closed at 14056.53 for the weekend. Spurred by the recent news such as the buying of 20% stake in the National stock exchange (NSE) by NYSE and others, stellar quarterly results by Infosys (INFY) and the economy looking healthy what with the industrial growth rate reaching 14.4 p.c. as of Nov 06 as compared to 6 p.c. in the same month in the previous year. Banking shares were in great demand after the governments decision to amend the Banking Regulation Act 1949. The general sentiment is that the market will hold on to the present levels and even go up around the upcoming budgets. With the value of the heavyweight IT shares already reaching high levels, tapping the Mid-cap IT segment seems to be a lucrative option. Your thoughts on this.

  2. Asif
    January 18th, 2007

    Anis, the fundamentals of the Indian stock market are excellent and many companies are exhibiting very strong revenue and earnings growth rates. However the rampant speculation that I hear about has me a little worried. People have come to expect 30% or more annual returns as the norm rather than an exception.

    As a fellow financial blogger who returned from a trip to India recently told me, many mutual funds in India have very high front end loads, back end loads and high expense ratios but  nobody is complaining due to the high double digit returns of the last few years.

    Oddly enough, when Wipro (WIT) reported third quarter 2007 results with a 40% increase in earnings and a 43% increase in revenue, the stock barely budged on the Bombay Stock Exchange but the ADRs listed on the NYSE jumped up almost 4%. Given the almost 24% premium that the ADRs trade at, eroding profit margins due to wage increases, workforce turnover and the high expectations surrounding both Wipro and Infosys, I decided to pare down my position in Wipro and take some more profits off the table.

    I still hold my original positions in Tata Motors (TTM) and Sify (SIFY) but feel that the time may not be right to initiate new investments in India. Waiting for a pull back like we experienced in May 2006 may be prudent decision.

    Did I mention that I have been known to be wrong before?

  3. Anis Haroon
    January 20th, 2007

    Thanks for you thoughts Asif. Another IT heavyweight Satyam Computer Services posted decent Q3 results, but couldnt beat analyst expectations. On the other hand mid-caps like Nucleus Software have been performing extremely well and like I said I want to explore those. Nucleus is coming out with its results on the 22nd and I am eager to see how it turns out.

    You are right about Mutual Funds in India. With the markets reaching such dizzy heights, Mutual Funds have become a safe and lucrative option for individual investors as the returns have been pretty decent with them, lest they could make such returns only by playing with high volumes in which case risk increases. Reliance Equity Fund, slated as India’s first hedge fund has been performing well and seems like a good investment option. Your thoughts.

  4. Sanjiv
    April 16th, 2007

    I need to know upcoming Indian ADRs. Can anyone tell me which companies will be listing on NYSE or NASDAQ? I am really interested in TCS and reliance.

  5. Asif
    April 21st, 2007


    I decided to dedicate a blog entry to your question and you can find my thoughts at,

    Tata Consultancy Services Listing on the NYSE?

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