Should you still invest in IT stocks?

Everytime the rupee goes up - the fortune of IT companies takes a beating. The last two quarters have been particularly tough - the rupee has gone up by almost 5%. So should one still invest in IT stocks at this juncture with the uncertain US economy and rupee appreciation?

Wipro earns over two thirds of its revenue from the US, so do Satyam, Infosys and TCS. Therefore, every time the rupee appreciates, the revenues of IT companies depreciate.

Analysts estimate that every 1% rise in the rupee reduces profits by 30-40 basis points. Most IT companies buy hedges to protect against currency fluctuation. But here's where the cookie crumbles.

Brokerage house CLSA says - Wipro will be the worst hit amongst IT companies since in the last quarter, it reduced its hedge by 50%. Infosys did so by 4%. But on the other hand, Satyam increased its hedge by 60% and TCS by 14%.

So companies like TCS and Satyam lose less if the rupee rises and if it depreciates - they only forego a premium. So if the rupee continues to appreciate, IT stocks will fast lose currency in the markets.

Dipan Mehta, Member of BSE believes that there is some element of uncertainty, which has come in on account of some specific problems in the industry. According to him, it would be safer to switch to high performing software product companies, which are available at good valuations and with growth prospects.

With IT czar Infosys' earnings barely 24 hours away, Prabhat Awasthi of Brics Securities does not expect a major fall in the stock. He mentions, "We believe business across tier I vendors has been extremely strong and there is really no major sign of slow down. So we think that there is unlikely to be a major fall in this stock post earnings release and guidance release because it's already reacted down from its peak quite significantly."

Even with such negatives playing in the sector, experts like Sangeeta Purushottam of Religare Securities and Dilip Bhat of Prabhudas Lilladher, believe that the IT sector has still the potential to outperform the Sensex and that it can be looked as a defensive bet.

Purushottam says, "The concern in the IT sector has really been the appreciation of the rupee. So as rupee finds some level of stability and we get some guidance from Infosys these will be the key factors to drive this sector. Also the concerns of people are going to be on how the next year will be as there are some emerging concerns on growth slowing down in the US. So these are the key factors, which are driving it, but some of them could settle down. So on balance, if we compare it to the Sensex earnings, this sector still has the potential to actually perform better than Sensex earnings."

According to Bhat, " In times when the markets are very unsure and probably slightly in a bearish phase, technology is always the best defensive sector. But our biggest worry is the strengthening rupee and despite 30-35% volume growth, we have still not seen any reasonable sign of price increase for them. Both the worries remain very strong, but still as what I said, it is at best a defensive sector to play in the current markets and maybe one should just wait for Infosys result particularly because that will set the tone."

Hospitality sector may see Rs 52K cr investment

Over the next two years, close to 80,000 hotel rooms are expected to come up in various categories across the country, according to Mr M.N. Javed, Deputy Director-General, Union Ministry of Tourism.

Currently, India has some 1,975 hotels with over one lakh rooms.

However, it is estimated that there is still a shortfall of about 1,50,000 hotel rooms.

"It is estimated that over the next two years 70,000-80,000 rooms will be added across different categories throughout the country," Mr Javed told Business Line.

Industry experts said that such a development would attract investments to the tune of Rs 52,000 crore.

BharatMatrimony goes in for in-film placement

Though the most popular theme in Indian cinema is love and marriage, matrimonial services don't seem to have zeroed in on this medium to build their brands. But now, in what is probably the first instance, online matchmaker BharatMatrimony.com has tied up with Eros Entertainment's Namaste London for an endorsement and a screen shot.

Mr Uday Zokarkar, Business Head, Bharat Matrimony Centre, told Business Line that the company went in for in-film placement as it played an important role in reaching larger audiences, non-resident Indians included.

"Bollywood's a great connector, and crossover movies especially so," Mr Zokarkar said. Namaste London starring Katrina Kaif and Akshay Kumar, is, among other things, about staying rooted in one's own value systems. This theme sees the heroine's father keen on finding a match from India for his Britain-born-and-bred daughter and putting her profile on BharatMatrimony to find a "nice Punjabi boy" for her.

"Getting their children married is a challenge for parents in families that live outside India," Mr Zokarkar said, adding that the movie reflected this reality that was being borne out in BharatMatrimony's own experience. Hence, the brand fit.

RComm, Sun TV ink pact for mobile content

Reliance Communications has entered into an "exclusive long-term agreement" with Sun Network Ltd to broadcast the company's television content on mobile handsets with GPRS and video viewing capability.

Initially, content from the Sun TV channel will be available to Reliance subscribers.

The company is planning to broadcast other Sun Network channels later.

On a timeframe for accomplishing this, V.G. Somasekhar, Hub Head, Tamil Nadu and Kerala, Reliance Communications, told Business Line that Reliance could launch all 20 Sun Network channels immediately, but was waiting for viewer feedback to determine future broadcasts.

Both companies did not disclose details of investment or revenue sharing involved.

Sebi ready for common accounting system, US SEC has resvns

At the thirty-second IOSCO conference, the annual global conference of market regulators from across the world, which is on in Mumbai currently, most regulators, except the US Securities and Exchange Commission, or US SEC, agreed to a common accounting system.

The International Financial Reporting Standards, or IFRS accounting standards is a common global accounting framework and has been agreed upon by most regulators, but it is the global "Big Brother" US that has reservations.

Market regulators want a common global accounting framework so as to make transactions easier. It is ironical to see that while the Sebi has expressed its keeness to move to the IFRS system, the US SEC is not ready - at least not for full convergence.

Jet takes over Sahara for Rs 1450 cr

Ending months of acrimony and legal disputes, Jet Airways today struck a deal to buy out Air Sahara for Rs 1,450 crore after clearance by a three-member arbitration panel.

"They (Jet and Sahara) have signed an agreement by which Jet takes over all the shares of Sahara for a price of Rs 1450 crores. Rs 500 crore was already paid, Rs 400 crore on or before April 20; the balance in equal annual instalments, payable from March 31, 2008, 2009, 2010, 2011, which will be interest-free. These are the important parts of the transaction, and we have informed the stock exchange," Jet's counsel, Harish Salve announced before the eager media today.

When probed for more, he declared, "The big news is that the two airliners have ended their dispute amicably and it's back in the skies again, as far as Jet is concerned."

On its part, Air Sahara seems to be content too. Air Sahara President, Alok Sharma  told  today that both the parties were happy with the deal and that the adjustments on assets will go back to the promoters.

Jet Airways Chairman Naresh Goyal said this price represents a 40% discount to the originally agreed price. He expressed his conviction in the deal saying, "There is no change in what was said in January, again in March; and I still say that there is no change in the thinking in the commercial sense. Commercially, it was good for the shareholders at that time. Keeping in mind the present condition aviation, it is again going to be very good, as far as the deal is concerned.  What we are doing is going to help the shareholders," he said.

Both, Salve and Goyal refused to divulge anything more, but promised to be more elaborate on the 16th of this month.

The deal was signed after the panel comprising British judge Lord Stein and Supreme Court Justices S P Bharucha and Jeevan Reddy, vetted the draft proposal prepared by Jet and Sahara.

This is the second merger in the country's aviation industry after the two state-owned air-carriers, Air India and Indian Airlines announced their merger last month.

TRAI may bat for mobile customers

The Telecom Regulatory Authority of India could come to the rescue of thousands of mobile phone customers who have been disconnected by operators despite submitting valid verification documents to their respective operators.

Consumer groups have written to TRAI seeking its intervention after a number of mobile consumers complained that the operators left them in the lurch over the past few days.

Mr Anil Kumar of Telecom Watchdog said, "We have written to TRAI citing examples of how consumers who have submitted valid papers have been disconnected. There are quite a few such subscribers on whose behalf we have approached the telecom regulator."

When contacted, senior TRAI officials said that they were examining the complaints and will intervene if required.

Sharing feed with TataSky: Sun TV gets interim stay

Sun TV has secured interim stay from the Madras High Court on the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) order asking it to share its signals with the Direct-to-Home provider TataSky.

"On Thursday (April 5), we filed writ petitions before the Hon'ble High Court, Chennai, challenging the orders passed by TDSAT in the matter of TataSky. The said writ petitions were admitted and the Hon'ble High Court granted an order of interim stay," Mr Y. Anil Kumar, General Counsel, Sun TV Network Ltd, told Business Line.

Earlier on March 19, the TDSAT in an interim order asked Sun TV to provide all its 20 channels on a-la-carte basis to TataSky at 50 per cent of its declared cable tariff.

The DTH service provider had also filed a petition in the Delhi High Court but later withdrew the case after the TDSAT took up the petition.

TataSky had contested Sun TV's decision not to provide signals to the DTH operator saying that it was resulting in a loss for the company.

High-speed Net link for one lakh schools

In a bid to catch them young, Bharat Sanchar Nigam Ltd is rolling out its broadband services to one lakh schools across the country by December 2008, as part of a project being embarked upon by the Ministry of Human Resource Development.

The Ministry will provide the details of the schools to BSNL for offering high-speed Internet services. The schools will be connected in four phases.

In the first phase, BSNL will cover 15,000 schools in 1,500 towns by December 2007. This will include 9,000 schools in 900 towns, where the company has its wire line based network and another 6,000 schools in 600 towns, where BSNL will set up its broadband infrastructure over the next two-four months.

Other phases

In the second phase, BSNL will add another 20,000 schools primarily located in rural areas. In the third phase, the telecom major will use wireless technologies such as Wi-Max to cover 10,000 schools in 1,000 blocks.

Minus the ads, BCCI tells players

In a move that will have far reaching consequences in cricket's commercial space, the BCCI has restricted a player from endorsing more than three sponsors at a time.

There's more; no sponsor can contract more than two players, and every deal a player signs has to be approved by the Board. This step has the potential to snowball into a major crisis.

Scores of ads featuring cricketers will now be history. The players are tightlipped, sports management agencies in a tizzy. The immediate concern of course is what happens to existing contracts?

"Say everyone has 8-10 endorsements. Which are the five we are getting rid of? What are going to be the legal remedies provided by the BCCI to keep the player out of that, because it's not the player's knee-jerk action that resulted in this kind of thing happening," Latika Khaneja the MD of Collage Sports says.

So just what is at stake? Here's an idea about the size of the pie:

• Sachin Tendulkar has as many as 14 brands to endorse which earn him close to Rs 45 crore a year; and demands 70 days of his time in a year.
• Skipper Rahul Dravid has 12 brands which take up to 60 days in a year and make him approximately Rs 13 crore.
• M S Dhoni's posterboy image earns him Rs 8 crore a year for the 15 brands that he lends his name to. It takes away 75 days a year of his time.
• Comeback man Sourav Ganguly has to spare time for seven brands, which takes up 35 days in a year and makes him approximately Rs 5 crore.

Experts believe that the BCCI may have overplayed its hand, and could have considered easier options.

"You can always limit the number of days, or in other words, the time that a player can devote to endorsements," Jeet Banerjee, the MD of Gameplan says.

The BCCI claims the decision was made on the recommendation of the seven ex-captains who attended their special meeting on Saturday. But not quite, says one of those captains.

"I think there's a little bit of a misunderstanding, a little bit of misinterpretation. Some of the recommendations given by some of the captains is that, more than anything else during the match days or before the tour, it's better that the players avoid the endorsements," former India captain Krishnamachari Srikkanth says.

So has the BCCI fired its gun from the shoulders of former captains? Will the players launch a legal challenge to this move? That is the question that has more than a million dollars riding on it.

IOC pins hopes on strong rupee

Being faced with a volatile undertone in crude and product prices leading to rise in under-recoveries, IOC (and other marketing companies) is pinning hopes on a strong rupee to ease pressure on working capital.

Though he prefers to consider the present slide of dollar as a "temporary phenomenon", Mr S.V. Narasimhan, Director (Finance) of IOC, says that a stronger rupee partially sets aside the impact of upward trends in crude prices.

"If rupee gains by 100 paise against dollar, our cost of crude comes down by 2%," he said. Naturally the working capital, which is under strain in the face of Rs 65 crore under-recovery a day by the company, gets some relief.

IT cos hit by rupee surge

Everytime the rupee goes up - the fortune of IT companies goes down.

Wipro earns over two thirds of it's revenue from the US, so do Satyam , Infosys and TCS. That's why every time the rupee appreciates, the revenues of IT companies depreciate. The last 2 quarters have been particularly tough - the rupee has gone up by almost 5 %.

On April 4, the rupee touched an 8-year high. Analysts estimate IT companies' revenues for the january to march quarter will be lower by about 1.5%. The next quarter will be worse.

"I think on account of weakness of the dollar against the rupee, you will see Infosys be the first one to come out with a muted guidance," says Ashwin Mehta, Analyst, Ambit.

Analysts estimate that every 1% rise in the rupee reduces profits by 30-40 basis points. Most IT companies buy hedges to protect against currency fluctuation. But here's where the cookie crumbles.

Brokerage house CLSA says - Wipro will be the worst hit amongst IT companies. That's because last quarter, it reduced its hedge by 50%. Infosys did so by 4%. But on the other hand, Satyam increased its hedge by 60% and TCS by 14%.

So companies like TCS and Satyam lose less if the rupee rises and if it depreciates - they only forego a premium. So if the rupee continues to appreciate, IT stocks will fast lose currency in the markets.

CAS(e) of problems?

It's time for the implementation of the second phase of the conditional access system or CAS. The TRAI has begun asking for co-operation from cable operators and Multiple System Operators (MSOs) in Ghaziabad and Thane, but CAS continues to give hiccups, reports CNBC-TV18.

 

 

It's been three months since the conditional access system was implemented in the notified areas of Delhi, Mumbai and Kolkata. But consumers here are complaining of not getting selected channels, slow service from cable operators and poor picture quality. 

 

 

"Whenever we contact them they give us excuses. We never get the channel that we want. The earlier system was much better. However cable operators believe that these are initial hiccups and will get sorted out in due course of time," says a harried customer.

 

 

Cable operators across selected cities are now gearing up for the implementation of the next phase of CAS. But each of them has a different opinion on the time frame within which this has to complete.

 

"Its good for both consumers and operators that competition has entered in the CAS area" says Roop Sharma, Cable Operator

 

The ministry of information and broadcasting has so far set no time limit for the implementation of CAS' second phase. Though the TRAI has begun asking for inputs from MSOs and cable operators. Some operators have agreed to implement CAS within one month but many feel they would require 5 to 6 months to implement it. Though most operators agree that the notification process should be done together across all the areas. TRAI had held a meeting with the cable operators and MSOs  last Thursday and would be talking to broadcasters and consumers as well.