Sensex, Nifty shoot up: Monday closing report

As suggested on Friday, bulls trampled over tired bears, with the news on the Iran nuclear deal, helping the bulls’ case in a big way

On Friday, we had written that “Nifty will try to rally on Monday as bears seem to be tiring out”. Sensex and Nifty rallied today, without any semblance of fight from the bears mainly because of very positive international news that Iran and US has reached a nuclear deal to restrict Iran’s nuclear ambitions. Policy makers view this as a positive sign of diffusing the otherwise volatile Middle-East region, with less probability of nuclear confrontation. Trade sanctions were also eased, enabling Iran to transact with the world, including India. The deal includes relaxed restrictions on cars, petrochemicals, aviation parts, gold, and insurance for oil cargoes. In addition, it will let the Persian Gulf state continue exporting oil at current levels instead of forcing further reductions.


Both oil and gold fell on the news. Nymex crude oil futures tumbled nearly 1.5% to $93.52 a barrel at time of writing this piece, the biggest decline in three weeks. Gold fell to a four month low of $1,232/ounce.


The market maintained strength throughout the day, getting stronger towards the second half of the trading session. The Sensex opened at 20,326 (incidentally also the intra-day low) and maintained a strong position for most of the day. Sensex hit the intra-day high of 20,626 before closing at 20,605 (up 387.69 points or 1.92%). Nifty opened at 6,035 (also Nifty’s day low), hit a high of 6,123 before closing at 6,115 (up 119.90 points, or 2%). Volumes were not strong, with 52.83 lakh shares being traded.


All the indices were in the green except for CNX IT which was marginally down by 0.02%. Banks and financial services finished strong, with Bank Nifty up 3.80%, CNX finance up 3.50% and CNX PSU Bank up 3.77%.


Of the 50 stocks on the Nifty, 46 advanced and remaining four declined. The top gainers were BHEL (5.43%); ICICI Bank (5.22%); BPCL (4.39%); Kotak Bank (4.20%) and State Bank of India (4.14%). The top losers were NTPC (-0.70%); Infosys (-0.50%); Lupin (-0.10%).


Of the 1,456 shares on the NSE, 864 closed in the positive, 491 closed in the negative while 101 remained unchanged.


Asian markets were surprisingly mixed, with mainly Sensex and Nikkei strong. The Yen weakened against the dollar, pushing up Nikkei 1.54%. Hang Seng and Shanghai both closed down marginally.


American stock futures were seen trending up. All European markets were seen trending up as well, with both France and Germany’s DAX being strong, moving up nearly a percent, as many companies from the region import from Iran.


SBI asks its deputy MD to go on leave following CBI raid

CBI had registered a case against Acharya, the deputy MD of SBI as well as KK Kumarah, former additional general manager at SBI and Piyoosh Goyal, chairman of Worlds Window Group for alleged graft in disbursing loan of above Rs100 crore

State Bank of India (SBI), the country's largest lender said it has asked one of its deputy managing directors, Shyamal Acharya to go on leave and also constituted an internal panel for probing the graft charges against him. The Central Bureau of Investigation (CBI) raided Acharya's residence in a case of alleged graft in disbursing loan of above Rs100 crore.


In a statement, SBI said, “We have been informed by the CBI that Shyamal Acharya, deputy managing director and group executive (mid corporate groups) of our bank, is being investigated. Acharya has been asked to proceed on leave.”


“We have also constituted an internal committee comprising two senior managing directors to investigate internally,” the statement said.


Yesterday, the CBI registered a case against Acharya as well as KK Kumarah,  former additional general manager at SBI and Piyoosh Goyal, chairman of Worlds Window Group for alleged graft in disbursing loan of above Rs100 crore.


According to the CBI, a team of its economic offences wing (EOW) in Mumbai has registered a case against them for alleged graft.


The agency sources said Goyal wanted a loan of over Rs100 crore from SBI for his firm when Kumarah got involved. They said Kumarah assured him of his contacts in the bank through which he could get that loan passed.


Sources said an arrangement was reached between Kumarah and Goyal under which he had to get Rs25 lakh for his services and Rs15 lakh for Acharya.


Kumarah allegedly purchased two high-end Rolex watches worth about Rs8 lakh to be given to Acharya for his alleged favours. Meanwhile, the CBI came to know about this deal and laid a trap.


Kumarah, who was coming out from the residence of Acharya after allegedly giving him watches, was nabbed by the CBI team.


The remaining cash of around Rs7 lakh was also recovered from him, the sources claimed.


The CBI teams carried out searches at the residences of Acharya, Kumarah and Goyal in Mumbai and Kolkata.


SBI said it stands committed to probity in its dealings and assured that it will continue to hold highest standards of honesty and transparency in its operations. The statement also said the bank is cooperating with the investigating agency in the probe.


India IT services: Improving demand but no spike in attrition, salaries

The bargaining power of Indian IT companies with respect to entry-level employees is at its peak with real wages at their lowest in more than 15 years

Indian information technology (IT) companies are witnessing improved demand without much pressure on wages due to significantly better supply of engineering students coupled with changes in business model. "This time the usual acceleration in wage pressure that accompanies improving demand seems absent. Attrition has remained low and wage inflation remains in single digits. We note the bargaining power of companies with respect to entry-level employees is at its peak with real wages at their lowest in more than 15 years. While some of the reasons for this may be cyclical and could reverse, we believe that part of the reason is structural, too," says Credit Suisse in a research note.


According to the report, a number of markers point to the lack of this pressure on IT companies. For instance, mid-sized companies such as Tech Mahindra and Hexaware have been able to postpone wage hikes without any significant increase in attrition. Tata Consultancy Services (TCS)'s guidance of entry-level hires is the same as FY09 despite twice the overall employee base and a vastly different outlook (more positive) on the demand environment. The necessity to hire from campuses 18 months in advance, as has been the case historically, seems lower now, it said.


An improving demand environment has not caused a spike in attrition this time

Significant improvement in supply of engineering talent

According to Credit Suisse, the capacity at engineering colleges in India has seen growth of over 20% CAGR over the past six years. While the quality of some of the colleges may be varied and the graduation rates may also vary, supply has increased over the past few years.

Intake capacity of engineering colleges saw an over 20% CAGR over the past six years

Given the significant oversupply, engineering colleges are now focusing on forging close relationships with the top-tier Indian IT companies. Industry efforts to incorporate their training programmes in the regular engineering degree curriculum are gaining traction. This can help companies reduce their cost of training employees and the time to ‘on board’ them, the report added.


Changes in the business model

Given the larger scale of Indian IT companies, Credit Suisse said, the higher proportion of fixed price work and some amount of automation, it believes that companies can continue to improve utilisation even beyond historical highs.


The companies are also focused on ‘non-linear’ avenues of revenue where revenue can grow much faster than headcount. Platforms are one such avenue. Also, the faster growing service lines such as infrastructure services are much less linear compared with traditional application development and maintenance, and package implementation. Further, the process of software development has become less complex in certain areas due to the reusability of code, and the development of tools and platforms. As a result, a number of positions can be filled potentially with non-engineering graduates, the research note said.


According to Credit Suisse, Indian IT companies have also stepped up overseas hiring. It said, the companies have entered new areas of IT services where local talent and expertise become important. Also, given potential immigration issues and the difficulty in getting visas, companies have ramped up hiring onsite at the cost of local hires. While this may create margin issues, it does ease the pressure on wages domestically, it concluded.


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