Companies & Sectors
Demand perspective for Indian IT industry looks marginally positive

According to Nomura, demand perspective for Indian IT industry looks better due to some possible uptick in technology outsourcing and  a more stable pricing outlook as against pricing pressure indications in second quarter

Accentures has annoucned its third quarter results in the US, which accorging to Nomura points out towards an optimism in both revenues and earnings, which are higher than analysts' forecasts.


According to Nomura's research note the key positives for Indian IT players, based on Accenture results, are: (a) broad-based revenue growth ahead of guidance; (b) strongest growth in consulting in nine quarters at 6% year-on-year and consulting booking growth of 10% year-on-year; and 3) strong growth in outsourcing at 10% year-on-year, which is the best in past seven quarters.


The key negatives, as pointed out by Nomura are (a) weak growth in outsourcing bookings up 2% year-on-year; 2) lowering of top end of FY14F revenue growth guidance to 5%; and (c) reduction in top end of diluted EPS guidance.


Nomura believes that the results are marginally positive for India IT from a demand perspective as it indicates: (a) some uptick in technology outsourcing; (b) continued strength in Digital; and 3) a more stable pricing outlook (vs pricing pressure indications in 2Q).


Nomura remains constructive on IT sector demand and remains overweight on the sector. The recommended top Buys are HCL Tech, TCS and Tech Mahindra.


Liquor business: Premium segment to drive growth and profits

India's spirits industry is an attractive long-term opportunity, supported by positive  demographics, low per-capita consumption and ongoing premiumisation trends, says Nomura

India’s spirits sector has significant room for growth over the next five years, given the positive macro factors suchas low per-capita consumption, growing middle class and urbanisation. While overall growth over the last couple of years has been low, the premium segment has seen much stronger growth, which will continue over the medium term, points out Nomura in a research note.


Nomura said it expects a steady pick-up in profitability for market leader United Spirits Ltd (UNSP) over the next three years, led by premiumisation of its portfolio. While in the short term, brand-building efforts will entail an increase in investment, Nomura sees long-term rewards as the company has one of the lowest margins among peers.


Nomura feels that Diageo’s expertise in building a premium portfolio of brands will be crucial for UNSP, with some of the groundwork for long-term change in strategy already being put in place over the past year.


For the industry as a whole, Nomura sees partnerships with global spirits companies as a positive, and the focus will be on improving profitability in the medium term across the sector.


Valuations for UNSP reflect the long-termattractiveness of the sector, with scope for improvement in profitability being significant from current levels. FY14F should set a strong base from where the company can start its long term planning, with new auditors reviewing various aspects of accounting norms at UNSP to bring them in line with the principles at Diageo.


While there will likely be short-term volatility in the share price after the open offer, Nomura said it believes long-term investors should continue to hold the stock. Over a longer term horizon, Nomura sees scope for profitability to almost double from current levels. UNSP should be part of investors’ core consumer portfolio, the research note from Nomura says.


SAT dismisses RIL appeal against SEBI order

The Securities Appellate Tribunal -SAT dismissed an appeal filed by Reliance Industries in the company's dispute with SEBI regarding alleged contravention of FUTP regulations ahead of the 2007 merger between Reliance Petroleum and RIL

The Securities Appellate Tribunal (SAT) on Monday dismissed an appeal filed by Reliance Industries Ltd (RIL) against a Rs11 crore penalty order passed by market regulator Securities and Exchange Board of India (SEBI). The market regulator had imposed the fine on RIL, the country's largest private company, for alleged violations of insider trading norms and contravention of its regulations on Fraudulent and Unfair Trade Practices (FUTP).

The SAT has been hearing almost over seven-year-old case of alleged insider trading arising from the merger of Reliance Petroleum Ltd (RPL) with RIL back in 2007. The dispute relates to alleged contravention of the FUTP regulations ahead of the 2007 merger between RPL and RIL.

Earlier in January 2014, the SAT sought clarification from SEBI and RIL on how new consent settlement norms would affect the ongoing case between the regulator and the company.

In May 2012, SEBI tightened the regulations for settlement through consent framework, as a result of which many cases including those related to insider trading, cannot be settled through this mechanism. SEBI notified a stricter set of consent norms that exclude settlement of serious offences such as insider trading, front-running, violations of listing disclosure norms and illegal pooling of money, among others.

The new norms are retrospective and apply to all cases from 20 April 2007. SEBI also excluded all pending cases from the consent settlement process and made it mandatory for an affected party to file for consent within 60 days of receiving a SEBI show-cause notice.

Reliance had said that when the impugned trades had taken place the new SEBI norms on insider trading were not in force. The SAT said that the norms were passed retrospectively and as such did not leave room for RIL to challenge the SEBI order.

Earlier, SAT had rejected RIL's plea to settle the case through consent orders thrice. The SEBI order rejecting the RIL plea to settle through Consent Orders noted the violations as “Alleged violation of regulation 3 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 in the matter of Indian Petrochemicals Corp Ltd.”

SEBI on 3 January 2013 made public a list of 149 consent applications, including 16 from various entities related to RIL group, which it had found unsuitable for settlement through consent process.

 As per SEBI, these 149 consent applications were rejected as they were not found to be in consonance with the revised guidelines. SEBI said that proceedings in these cases will continue in accordance with law.

These include 13 applications from various entities in a case involving alleged violation of SEBI regulations for “Prohibition of FUTP” in a matter of RIL’s erstwhile subsidiary Reliance Petroleum.

Besides, there are three applications related to alleged violation of “Prohibition of Insider Trading Regulations” in the matter of another erstwhile RIL group company—IPCL—which used to be a government-owned company and was later acquired by Mukesh Ambani-led group as part of a disinvestment exercise.

Both the companies, Reliance Petroleum and IPCL, used to be separately listed entities, but were later acquired by RIL and got delisted from the stock exchanges. The merger process for RPL was completed in 2009.


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