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All rights reserved. For reprint rights: Times Syndication Service. Personal Finance News. Vodafone Idea. Market Watch. Pinterest Reddit. By Sameer Bhardwaj. The recent performance of the Indian stock market is not in sync with economic fundamentals. While the market continues to hit all-time highs, macro indicators paint a dismal picture of the economy. The weakness comes across through numbers that show declining core sector growth, falling consumption, likely fiscal slippage and lower GDP growth projections.
Some experts believe that deteriorating macro fundamentals are due to structural issues that will create obstacles on the road to economic recovery.
As markets cannot remain isolated from the economy for a long period of time, one can expect high volatility in the near future. Generally, volatility analysis is done using the returns a stock or an index generates and such returns are calculated for different time frames—weekly, monthly, quarterly or yearly. Statistical tools like standard deviation and beta are often used for volatility estimation and for identifying stable or low volatile stocks.
Instead of looking at volatility from the returns side, how about looking at companies that have displayed low volatility in their core fundamentals like revenue growth or EPS growth over a period of time?
Companies that maintain stability in principal fundamentals tend to control systematic or market risks better than the rest. On the other hand, stability in EPS growth indicates operational efficiency and cost control. To identify such companies, the consolidated numbers showing sales revenue growth and adjusted EPS growth were analysed for the past 10 financial years, starting from Over companies with market cap greater than Rs crore were considered.
Similar growth numbers were extracted for the aggregate BSE index. Standard deviation of the series of revenue growth and adjusted EPS growth were worked out for the companies and for the aggregate BSE index.
Only companies that reported positive adjusted EPS in all of the past 10 years were included in the analysis. To identify companies with low volatility in financials, only those with standard deviation of revenue growth and adjusted EPS growth less than that of the BSE index were filtered out. Only 22 companies passed these filters. All returns are absolute and point to point. The numbers clearly show that stocks with stable financials outperformed the market substantially.
The standard deviation of these stocks based on their last year RoE is less than the standard deviation of the average RoE of the BSE index. The performance is helped by capacity additions and reduction in operation and maintenance costs.
Despite consumption slowdown, the company reported decent numbers in the September quarter with 6. Moreover, low capital intensity and robust pricing power have helped the company to maintain a strong RoCE profile. In the September quarter, the company reported strong net profit growth helped by a decline in raw material and employee benefit costs. It generated high net cash amid consistent operating cash flows. PE: In the September quarter, the company signed 13 new deals and the management continues to be positive on the strong deal pipeline.
However, the brokerage has expressed concerns over general weakness in BFSI by the service peers. According to Bloomberg consensus estimates, the company is likely to deliver RoE of The company is chasing large public sector deals in the Asia Pacific and Europe.
HDFC Securities is bullish on the stock due to better visibility on growth, stable margin trajectory and the recent stock underperformance. The growth is likely to sustain and margins are expected to remain steady due to its focus on large deals, recovery in large account mining, pricing lever in digital, and completion of accelerated investment phase. The stock correction and partial recovery following the whistleblower allegations and clarifications provide an opportunity.
The stock is currently available at its median valuations which is at a peak discount to TCS. The company continues to lead in project wins and was declared the successful bidder in two of the intra-state transmissions system projects in Uttar Pradesh under Tariff Based Competitive Bidding TBCB.
PE: 9. It remains a good play on the dividend yield. However, the brokerage house feels that the recent Supreme Court ruling on adjusted gross revenue will be an overhang. PE and ROE estimates for BSE index estimated PE: Current price as on 26 November. Index values normalised to a base of Read this article in : Hindi. Indian Stock market. Stock Market. Oracle Corporation. Add Your Comments.
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Infosys Annual Report 2009
These 7 companies with stable financials can be good stock investments