The Nifty has to sustain itself above 5,925 to continue the upward momentum
The market settled higher on support from IT and technology stocks after Infosys’ quarterly results beat estimates. The Nifty has to sustain itself above 5,925 to continue the upward momentum. The National Stock Exchange (NSE) recorded a lower volume of 47.16 crore shares and advance-decline ratio of 613:725.
The Indian market opened higher as first quarter results from IT major Infosys beat estimates. However, markets in Asia were mixed in morning trade on cautiousness ahead of the release of China’s second quarter growth data on Monday. US markets closed with good gains on Thursday following Federal Reserve chairman Ben Bernanke’s reassurances that the central bank will continue a “highly accommodative policy” for some more time.
The Nifty opened trade at 6,001, up 66 points, and the Sensex jumped 223 to resume trade at 19,899. Gains in IT and technology sectors led the benchmarks higher as trade progressed.
IT major Infosys reported a 3.7% increase in consolidated net profit to Rs2,374 crore for the first quarter ended 30 June 2013. The Bangalore-based firm had reported a net profit of Rs2,289 crore in the year-ago period. Consolidated revenue for the reporting quarter was up 17.2% to Rs11,267 crore from Rs9,616 crore in the year-ago period.
However, profit booking saw the indices paring their initial gains and trading lower, albeit in the positive terrain. The market touched its lows shortly after 10.00am with the Nifty slipping to 5,951 and the Sensex falling to 19,786.
The market continued its sideways movement in the second half of the trading session on support from IT and technology stock but consumer durables, realty and auto sectors capped the gains.
The benchmarks resumed their northward journey in late trade on support from the IT sector on the back of a decent quarterly showing by Infosys. The benchmarks hit their highs toward the end of the trading session with the Nifty rising to 6,019 and the Sensex 19,992.
The market settled near the highs, closing in the positive for the second day in a row. The Nifty closed above the 6,000 level at 6,009, up 74 points (1.25%) and the Sensex ended the day at 19,958, a gain of 282 points (1.44%).
Among the broader indices, the BSE Mid-cap index ended flat and the BSE Small-cap index fell 0.19%.
The top sectoral gainers were BSE IT (up 6.46%); BSE TECk (up 5.13%); BSE Capital Goods (up 1.95%); BSE Healthcare (up 1.08%) and BSE Power (up 0.71%). The main losers were BSE Consumer Durables (up .96%); BSE Realty (down 0.58%); BSE PSU (down 0.40%); BSE Fast Moving Consumer Goods (down 0.21%) and BSE Auto (down 0.12%).
Out of the 30 stocks on the Sensex, 22 stocks settled higher. The main gainers were Infosys (up 10.92%); Wipro (up 3.34%); TCS (up 2.94%); Larsen & Toubro (up 2.72%) and Dr Reddy’s Laboratories (up 2.57%). The top losers were Maruti Suzuki (down 3.58%); ONGC (down 2.72%); Mahindra & Mahindra (down 1.38%); Hindalco Industries (down 1.12%) and ITC (down 0.95%).
The top two A Group gainers on the BSE were—Infosys (up 10.92%) and Tech Mahindra (up 5.19%).
The top two A Group losers on the BSE were—MMTC (down 5%) and Gitanjali Gems (down 4.99%).
The top two B Group gainers on the BSE were—Rajshree Sugars & Chemicals (up 20%) and Rishabdev Technoable (up 20%).
The top two B Group losers on the BSE were—Innovative Industries (down 19.92%) and Welspun Syntex (down 19.88%).
Of the 50 stocks on the Nifty, 31 ended in the in the green. The major gainers were Infosys (up 10.92%); IDFC (up 3.68%); L&T (up 3.39%); TCS (up 2.90%) and Reliance Industries (up 2.87%). The key losers were Jaiprakash Associates (down 3.23%); Maruti Suzuki (down 3.22%); ONGC (down 2.66%); UltraTech Cement Company (down 1.83%) and Grasim Industries (down 1.45%).
Markets in Asia closed mixed on nervousness ahead of the release of China’s GDP data for the second quarter of 2013 on Monday.
The Jakarta Composite advanced 0.63%; the KLSE Composite gained 0.25%; the Nikkei 225
rose 0.23% and the Taiwan Weighted settled 0.50% higher. Among the losers, the Shanghai Composite tanked 1.62%; the Hang Seng dropped 0.66%; the Straits Times fell 0.40% and the Seoul Composite was 0.41% lower.
At the time of writing, the CAC 40 of France was 0.33% higher, the DAX of Germany gained 0.99% and UK’s FTSE 100 rose by 0.54%. At the same time, the US stock futures were trading with marginal gains.
Back home, foreign institutional investors were net buyers of stocks totalling Rs638.26 crore on Thursday while domestic institutional investors were net sellers of shares amounting to Rs234.61 crore.
Dr Reddy’s Laboratories today announced that it has launched Decitabine for Injection (50mg), a therapeutic equivalent generic version of Dacogen (Decitabine for Injection) in the US market on Thursday. This follows approval by the United States Food & Drug Administration (USFDA) of Dr Reddy’s Abbreviated New Drug Application for Decitabine for Injection. The stock gained .45% to Rs2,352 on the NSE.
Continuing with its strategy of divesting non-core businesses, real estate player DLF has entered into a definitive business transfer agreement with Goyal MG Gases Pvt Ltd to transfer 11.2-MW capacity wind turbines located at Gadag, Karnataka on “as is where is basis” by way of slump sale for a lumpsum consideration of Rs29.52 crore. DLF fell 0.48% to close at Rs177.60 on the NSE.
Coromandel International, India’s leading fertiliser manufacturer has with its joint venture partners inaugurated a 1.4 million tonnes phosphoric acid plant in Tunisia on Friday. The stock rose 0.42% to Rs179 on the NSE.
The credit growth crunch could prompt banks to increase their investment in government securities, says Nomura Research
Deposit growth has exceeded credit growth for the third time in two years. The gap between deposit and credit growth though marginal in the past two years, was nearly 10% in 2009. “Since mid-2010, credit has been growing far in excess of deposit growth. In June, however, credit grew by 13.7% y-o-y, slightly below deposit growth of 13.8%. This widening wedge between deposit and credit growth has been a key structural factor behind worsening liquidity conditions in India,” mentions a recent research report from Nomura. The report goes on to say that “The lack of credit growth alternatives should, over time, prompt banks to increase their investments in government securities.”
Against deceleration in credit growth, banks’ investments in government securities increase substantially. According to a Reserve Bank of India (RBI) report, “This trend partly reflects increase in risk aversion by banks with a growing preference to park funds in safer instruments, against the backdrop of weak macro-economic outlook as well as rising NPAs.” Banks have refrained from aggressive lending due to concerns over asset quality and a rise in non-performing assets, while an overall slowdown in the economy has hurt demand.
Investment is government securities are also subject to interest rate risks as the chart below shows:
With easing inflation and slow growth, research firms are expecting a 50 basis point cut in interest rates over the fiscal year. However, the RBI would be keeping an eye on the huge current account deficit as well before making a decision. However, if interest rates do decline, investments in government securities would benefit.
Credit growth to improve?
The RBI had projected credit growth at 15% and deposit growth at 14% for the current fiscal. While the deposit growth is in line will the central banks’ target, credit growth has fallen short. Though credit growth is usually slow in the first half of the financial year, for the current year it has been much lower than that recorded in June 2012 at 16.51%. In fact, credit growth has gradually fallen over the past year.
According to RBI’s annual policy report, “credit growth decelerated from 18.2% at the beginning of 2012-13 and remained close to 16% for the major part of the year. By March 2013, credit growth dropped to 14%, lower than the indicative projection of 16% (for FY13), reflecting some risk aversion and muted demand.”
RBI’s credit conditions survey showed easing of overall credit conditions, there was some tightening for sectors such as metals, construction, infrastructure, commercial real estate, chemicals and finance in Q4 of 2012-13. The incremental credit-deposit ratio came down to 45.22 for Q1FY14 from 46.70 in the year-ago period.
Nomura is of the view that, “Credit growth is moderating due to the lagged effects of weak demand, and deposit growth appears to have stabilised due to lower inflation, which has increased real interest rates. This could lead to a shift from physical assets (such as gold) to deposits.”
This fall in credit growth has been one of the main reasons why finance minister P Chidambaram asked public sector banks to cut their base rates. “Reduction in base rate will be a powerful stimulus to boost credit growth,” Chidambaram said. However, bank complained of limited room to cut rates due to the increase in provisioning requirements and the cost of raising money has gone up. Some banks did lower their base rate by 25 basis points. Falling credit growth could persuade banks to pass on rate cuts even at an expense to their margins.
Unless the ICAI changes its role and becomes more of a quality educator, it would be better to look at other career options and not practice as a CA
I am a relatively small practicing CA, and I get almost 600 mails a month for articleship and for jobs for freshly qualified CAs. Why this sudden flood of applications? Over the years the Institute of Chartered Accountants of India (ICAI) has quite literally liberalized the passing out percentage to such an extent that today more than 30% students pass out every six months as qualified chartered accountants! It is good that so many CAs are passing out, but, is the institute ensuring that each freshly qualified CA is competent and based on that competency does it ensure that the fresh CA gets gainful employment? Is the ICAI following a sane education policy? Does the industry have the capability to absorb so many CAs? Or are we devaluing the profession by just pushing in numbers without taking care of quality?
I do not deny that there will be brilliant students—but at the same time we are also stuck with mediocre students who proudly prefix their name with ‘CA’! Today a CA can be hired for as little as Rs20,000 per month and still one finds that CAs are jobless! This is as much as a graduate gets in a call centre! Should the ICAI not have a re-look at its policy of passing students?
No job, alternative–practice?
With CAs flooding the market and not getting a job, the alternative is to start a practice—which is easier said than done as the cost of setting up a new practice in metros is very steep with property prices and rentals beyond the reach of most freshly qualified CAs budgets.
I have been in practice for the last 24 years and the challenges faced in practice are phenomenal—especially if you want to follow the straight and narrow path. Clients do not like an increase in fees, traditional practice is getting redundant and does not have value—in fact it is losing monetary value! The new economy is throwing more challenges and unless the smaller firms consolidate and innovate they too will become redundant, with the big CA firms in a much better position to corner all the glory work with economies of scale and contacts at high levels. Let me run you through some traditional practice models and its revenue stream showing which will show that fees have stagnated while costs have gone through the roof.
1. Return filing
The return filing fees in 1990 was Rs1,500 and even now a CA cannot charge more than Rs2,000. The purchasing power of Rs1,500-Rs2,000 was far greater in 1990 whereas in 2013 it does not pay for a dinner for a family of four at a decent restaurant. The same is true for VAT.
2. Assessment hearing
The assessment proceedings have greatly reduced. In any case the same pattern. It was great value to charge Rs2,000 per hour in 1990 and we cannot increase the same by inflation rate. If Rs2,000 of 1990 has become Rs20,000 in value in 2013 we cannot charge Rs20,000 per hour. Even if we charge the client laughs to our face!
3. Audit Fees/Certification Fees
A similar pattern follows for audit fees and certification fees. With much greater risk and responsibility thrown onto the auditors, the clients hate to increase fees. With so many CAs flooding the market, we are developing a rubber stamp culture where CA shopping is done to see who certifies at a lower rate—something like the notaries who run after you outside every court for getting the job done through them!
Unfortunately CAs have not remained immune to inflation unlike the clients’ propensity to pay appropriate and fair fees! Subscribing to knowledge based websites and purchase of books have all kept pace with inflation and sometimes have outrun inflation, thereby disproportionately increasing operating costs. The articled clerks demand nothing less than Rs5,000 per month, some of them protesting deduction of profession tax, which is a legal obligation on the payer! Cost of communication, power, systems, everything has gone up—but the fees remain fixed to 1990 levels!
I find that a lot of CAs who were doing very well in terms of monetary value in 1990 to 2000 are not making much money in 2013. Today a good fresher CA gets a CTC of Rs4 lakh to Rs6 lakh (these are among the lucky few) and a CA with 20 years experience in practice is not far off from that figure of income. This leaves quite a bitter taste in the mouth.
Innovate and Evolve
We therefore must evolve. One of the methods of evolution is that we need to find ways and means of working together and increasing revenue. We pool together the resources and the knowledge base. Some of us must develop resources and some of us can develop knowledge base. We can then take up larger assignments in the corporate sector. We have to attune ourselves to the changing economy and business structure. We need get together like-minded professionals and evolve a working relationship which can sustain in long run. We need to develop a bigger brand as well.
If one seriously wants to pursue a career as a CA, one will have to assess the focus area of specialisation, whether one wants to go into the industry or practice. Unless the ICAI changes its role, and becomes more of a quality educator rather than an institute which is flooding the market with ‘qualified’ CAs, who do not find jobs, it would be better to look at other career options.