Jefferies has downgraded Maruti Suzuki India to ‘underperform’ from ‘buy’.

Maruti Suzuki shares declined as much as 1.9 per cent in the early trade on Monday after Jefferies downgraded the carmaker’s stocks to ‘underperform’ from ‘buy’. According to the global investment bank, Maruti’s strong outlook is in the price and its stock is trading at all-time high multiples.

At 9.55 am, Maruti Suzuki shares were trading 1.79 per cent down at Rs 4497.90 a piece. The scrip opened at Rs 4,572 and had touched a high and low of Rs 4572 and Rs 4492.20, respectively, in trade so far.

“The stock trades at peak multiples when profitability is also at peak. The company is stepping out of areas of core competence – focusing on larger cars, outsourcing manufacturing but raising investment in R&D, land and parallel distribution – with risks associated,” said, analysts Govindarajan Chellappa and Apurva Kumar at Jefferies.

Shares of Maruti Suzuki India are trading at 21.83 times of 1 year forward earnings compared to 18.6 times of rivals. Stock has 44 buy, 5 hold and nil sell ratings.

For the quarter ended June 2015, Maruti Suzuki posted net profit of Rs 1,192.92 crore, up 56.49 per cent against Rs 762.28 crore in the corresponding quarter a year ago.

For the April-September period, the domestic sales for the company stood 12.7 per cent higher at 6,28,963 compared to 5,58,330 units in the same period last year.

(With inputs from Reuters)

Maruti Suzuki stocks will be in focus as global investment bank Jefferies has downgraded its stocks to “underperform” from “buy”.

The BSE Sensex and NSE Nifty opened on a positive note on Monday following strong global cues. At 9.21 am, Sensex was up 317.91 points at 26,538.86. Similarly, Nifty was up 85.60 points at 8,036.50 during the same time.

Stocks that are likely to be in focus today

Adani Ports: Adani Ports and Larsen & Toubro (L&T) on Saturday said that they have inked a pact to oversee operations of Kattupalli Port in Tamil Nadu.

SBI: The public sector bank on Sunday said that it will charge up to 10% for home loans, which makes effective reduction in rates only 20 basis points as against 40 basis point cut in base rate.

Tata Steel: The company is set to commission the first phase of its Kalinganagar plant, where it has invested Rs 22,000 crore so far, in the next fiscal.

Larsen and Toubro: The stocks of the company will be in focus as Citi has upgraded Larsen and Toubro from ‘neutral’ to ‘buy’.

ICICI Bank: The private sector lender on Thursday reduced its base rate by 35 basis points to 9.35%, effective October 5.

Parsvnath Developers: The realty company said on Sunday that its shareholders have approved the company’s special resolution to raise up to Rs 1,000 crore through private placement of non-convertible debentures (NCDs).

Maruti Suzuki: The stocks of the carmaker will be in focus after Jefferies downgraded its stocks to “underperform” from “buy”. It said the carmaker’s strong outlook is in the price and its stock is trading at all-time high multiples.

NTPC: The state-run company will consider selling electricity to Bangladesh from its upcoming 750 MW plant at Kokrajhar in Assam once the neighbouring country finalises plans to buy power from Palatana project in Tripura.

National Buildings Construction Corporation (NBCC): The company has secured total business amounting Rs 276.96 crore (approximately) from various clients in the month of September, 2015.

The BSE Sensex and NSE Nifty are likely to open in green on Monday tracking SGX Nifty and firm global cues. (Express Photo)

The BSE Sensex and NSE Nifty are likely to open in green on Monday tracking SGX Nifty and firm global cues.

At 8.22 am (IST), SGX Nifty was up 0.94 per cent, or 75.50 points, at 8,034.

Hang Seng, Nikkei and Shanghai were up 1.89 per cent, 1.22 per cent and 0.48 per cent at 21,911.78, 17941.62 and 3052.78, respectively.

Asian stocks rose early on Monday after prospects of a near-term interest rate hike by the Federal Reserve ebbed in the wake of Friday’s weaker-than-expected US employment data.

Data released on Friday showed US non-farm payrolls rose by 1,42,000 in September, considerably lower than the 2,03,000 jobs the markets had expected.

The possibility of the Fed delaying the lift-off date for rates also meant its loose policy, which has helped shore up risk assets globally by providing cheap cash, would continue a little longer. The Dow and S&P 500 both gained more than 1 per cent on Friday.

Back home, Sensex and Nifty gained 0.25 per cent and 0.03 per cent on Thursday. Domestic equity markets were closed on Friday on account of Mahatma Gandhi Jayanti.

Will worsening macro indicators start reflecting in commentary? We expect Tier 1 IT (information technology) (incl. Cognizant Technology) aggregate USD CC (constant currency) revenues to grow marginally below Q1 at 3.4% q-o-q (quarter on quarter) in Q2F (vs 3.7% q-o-q in Q1) and overall USD revenue growth to decelerate to 9.5% y-o-y (seventh quarter of deceleration from a peak of 15.4% y-o-y). Cross currency moves will again hit USD revenues by 80-100bps across tier 1 IT (ex Cognizant). In CC terms, TCS and Infosys will likely lead growth (4% q-o-q), followed by HCL Technologies (3.3% q-o-q) and Cognizant/Wipro (2.7% q-o-q). Tech Mahindra will lag with 2% q-o-q in CC terms, in our view. The key to watch is whether there is any tempering of growth expectations going forward, given contrasts of positive demand commentary and weakening macro indicators. Also of interest would be: (i) trends in US/BFSI/Retail/ADM/EAS, which have been laggards; (ii) commentary on challenged segments Energy/Telecom; and (iii) continuation of strong momentum in Europe/IMS/BPO/Engineering services/Mfg/Healthcare.

Will larger segments – US/BFSI/Retail – rebound?

We believe there has been some worsening of macro demand indicators (US PMI down to a 12-month low in Aug-15, private jobs data being weaker than last year, and client financials seeing deterioration over the last three-four quarters). This seems to have weighed on US growth for Indian IT, in addition to sector-specific issues in energy/telecom. Recovery in the US is crucial for stock performance and we believe those hopes could see some tempering going into 2H as the weaker macro feeds into demand. Commentary on (i) BFSI/Retail, which have been the key contributors to US drag, and (ii) Continuation of traction in Europe will be keenly watched.

Will pricing stabilise and INR depreciation benefits be retained?

Historically in sharp rupee depreciation periods, margin impacts have been between one-fifth to half of theoretical impacts, and whether rupee depreciation gains will be retained this time around will be key to countering any growth moderation. The answer to that would lie in pricing trends, which we think might continue to be soft. Our view is that while Q2 will see margin increases driven by INR depreciation, these benefits are unlikely to be retained going forward. We expect Ebit margins at HCL Tech to be up 60bps q-q, TCS/Infosys up ~90bps q-o-q and Tech Mahindra up ~200bps q-o-q. At Wipro, we expect flattish margin trends as USD-INR realisations in Q1 were high at 64.7. The aggregate earnings growth for Tier-1 IT is likely to be at ~12.5% y-o-y in Q2FY16F (forecast), on our estimates.

Key things to watch:

Infosys: We expect Infosys to retain its FY16F USD CC revenue growth guidance of 10-12%. Key to watch would be (i) Pricing trends and any stability (after ~700bp CC offshore pricing decline over last four quarters), (ii) deal flow and deal win commentary, and (iii) Sustenance of Q1 performance in Consulting & SI and improvement in ADM (together ~two-thirds of Infosys revenues), will be a trigger for re-rating. Any moderation in commentary on margins, or back-ended growth indications, might be taken negatively. We believe that while near-term growth expectations might not be at risk, there is a chance of a disappointment with respect to Street Ebit margin expectations.

TCS: TCS for the past four quarters has come in below consensus revenue growth expectations, driven by segment-specific weakness in energy/telecom /insurance or geographical weakness in Japan/LATAM/India, and this has led to the stock underperforming the Nifty by 2% LTM (last twelve months). We believe an in line or better result is crucial in Q2 for stock performance, even though we consider TCS to be fundamentally stronger than Infosys/Wipro.

Wipro: We expect Wipro to guide for 1.5-3.5% q-o-q USD revenue growth in Q3FY16F. The key catalyst for Wipro would be better growth in Europe (which has dragged at -4% y-o-y in LTM vs ~4% y-o-y for tier 1 IT aggregate), the rebound in Healthcare (seen two quarters of softness after growing strongly) and any signs of stabilisation in Energy & Utilities. Commentary on Energy & Utilities (Wipro’s area of strength) and possible second half recovery, as indicated by the company earlier, would be keenly watched.

HCL Tech: We expect strong momentum in IMS and BPO at HCL Technologies, although engineering services could possibly take a breather after ~23% y-o-y growth in FY15 (though we remain positive on longer-term prospects). We expect positive margin progression despite partial salary hikes in Q1, which should give comfort on management guidance of FY16F Ebit margins between 21% and 22%. Growth comfort and reasonable valuations should continue to be the drivers for stock performance.

Cognizant: We expect Cognizant Technology to marginally raise its FY15F guidance to 20.5%+ (vs 20.1% earlier). Strength in healthcare and near-term impacts of M&A in this space, coupled with share gains in BFSI, would be key to watch. We believe Cognizant is well-placed on growth given ~ 50% revenue contribution from manufacturing and healthcare, market share gains in BFSI, and strong Digital Capabilities.

Tech Mahindra: Tech Mahindra would be the weakest result on growth among tier 1 information technology in Q2, on our calculation. However, margin trajectory should start to improve, the slope of which along with the outlook on telecom/enterprise segments and deal flow will be keenly watched. Play selective; back growth comfort; top Buys HCL Tech and Cognizant.

Mix is becoming important in choosing stocks as contrasting forces are at play (i) US demand has not seen improvement, while Europe is strong at constant currency growth of 16% y-o-y for tier 1 IT; (ii) traditional services (ADM/EAS) are sluggish, while underpenetrated services (IMS/BPO/Engineering services) are strong; (iii) BFSI/Retail are decelerating while healthcare are growing

Given the importance of mix, we prefer HCL Tech (IMS, Engg. Services, BPO ~60% of revenues) and Cognizant (Healthcare/Mfg ~50% of revenues, strong Digital capabilities and market share gains in BFSI) as our key absolute Buys in the space.

Within TCS/Infosys we prefer TCS from a longer-term perspective on a relative basis on better portfolio mix and stronger fundamentals. Though on near-term commentary, Infosys is sounding more confident than TCS.

At the end of the week, Infosys commanded a market valuation of Rs 2,69,489.03 crore. This was Rs 432.68 crore more than HDFC Bank’s m-cap of Rs 2,69,056.35 crore. (Reuters)

IT major Infosys has surpassed private sector lender HDFC Bank, becoming the third most valued Indian firm in terms of market valuation, with TCS leading the top 10 companies chart, followed by Reliance Industries (RIL).

A rally in the stock market past week saw the combined market valuation of top eight Sensex companies surge by Rs 50,464.51 crore.

HDFC Bank came behind Infosys in the ranking of top-10 companies last week.

At the end of the week, Infosys commanded a market valuation of Rs 2,69,489.03 crore. This was Rs 432.68 crore more than HDFC Bank’s m-cap of Rs 2,69,056.35 crore.

During the past week, the market valuation of Infosys surged by Rs 7,315.77 crore to Rs 2,69,489.03 crore and HDFC Bank added Rs 4,570.52 crore to Rs 2,69,056.35 crore.

Shares of Infosys touched its one-year high level of Rs 1,197 apiece on Thursday.

TCS emerged as the biggest gainer among the top 10 firms, with its valuation soaring by Rs 12,555.44 crore to Rs 5,17,045.42 crore.

The m-cap of RIL zoomed by Rs 7,901.76 crore to Rs 2,79,249.60 crore and CIL added Rs 6,063.71 crore to Rs 2,07,303.08 crore.

ITC’s valuation climbed Rs 4,936.3 crore to Rs 2,63,911.16 crore.

Similarly, the market valuation of ONGC went up by Rs 4,192.19 crore to Rs 1,98,744.04 crore and that of HDFC rose by Rs 2,928.82 crore to Rs 1,89,203.10 crore.

Two companies that suffered losses in their m-cap were SBI and Sun Pharma.

SBI’s valuation dipped by Rs 2,837.34 crore to Rs 1,78,108.76 crore and Sun Pharma lost Rs 132.36 crore to Rs 2,14,353.31 crore.

TCS continued to rule the top 10 list, followed by RIL, Infosys, HDFC Bank, ITC, Sun Pharma, CIL, ONGC, HDFC and SBI.

The benchmark Sensex gained 1.38 per cent to settle at 26,220.95 over the past week.