Wednesday, January 13, 2021

Will Big Deals Boost Infosys Quarterly Results?

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What’s happening: Infosys Limited is all set to report its earnings results for the fiscal third quarter before the opening bell on Wednesday, January 13.

What happened: After a strong set of results from Tata Consultancy Services, markets are expecting the Indian IT major to report a similar performance for the latest quarter.

Although the quarterly results are likely to have been boosted by large deals, there are concerns around the company’s margins taking a hit.

What are the estimates: The Bengaluru, India-based firm is expected to report growth in revenues, while earnings are likely to have remained flat.

  • Revenues are expected to come in at $3.37 billion, representing 4% growth from the same quarter last year.
  • Earnings are projected at 15 cents per share, in-line with what was reported for the year-ago quarter.

Why it matters: Infosys had reported substantial profit growth for the previous quarter, exceeding market expectations.

The company’s performance in the latest quarter is expected to have been boosted significantly by big deal wins, including the Daimler AG deal to propel the German company’s digital transformation. Strong demand for cloud and security services amid stay-home orders may have benefited the company’s top-line during the quarter.

Market expectations of a strong quarterly performance are clearly visible in the company’s share price movement. Shares of Infosys have surged around 25% during the three months ended December 2020, with around a 10% gain so far this year on the Indian stock exchange. This compares with a more than 21% rise in the Nifty IT index and 24.3% gains in the Nifty 50 during the three months ended December.

Infosys is also making significant progress in providing AI (Artificial Intelligence) services, which has received a fillip by a surge in demand by enterprises due to lockdown measures.

However, analysts are projecting margin contraction for the latest quarter due to higher costs of deal closures and salary hikes for some employees.

What to watch: Investors will keep an eye on the company’s earnings call to know more about the extent of TCV (total contract value) signed during the quarter as well as the terms and other details of the deals.

Markets also expect the IT firm to lift its revenue forecast for fiscal 2021, as a result of the deal closures last quarter.

The Markets Today

     

Crude oil will be in focus today ahead of the EIA’s (Energy Information Administration) report on crude inventories.

Context: Oil prices rose on Wednesday to record gains for a seventh session, following a further decline in crude inventories.

Details: Crude oil prices are trading at the highest level since February 2020, when the covid-19 pandemic started spreading outside China.

Markets shrugged off the rise in covid-19 cases and deaths developments in the US and Europe, despite the rollout of vaccines. The authorities in China also announced fresh restrictions in areas around Beijing to contain the spread of the virus.

The continued decline in inventories has been supporting oil prices, with investor sentiment also being lifted by Saudi Arabia’s plans to cut output by an additional 1 million bpd (barrels per day) in February and March to avoid the build-up of stockpiles.

US crude inventories fell by 5.8 million barrels to approximately 484.5 million barrels last week, according to a report from the API (American Petroleum Institute) released late Tuesday. The decline was higher than the expectations of a decline of 2.3 million barrels.

WTI (West Texas Intermediate) crude rose by 1% to reach $53.73 per barrel in the Asian session this morning, after surging around 2% on Tuesday. Meanwhile, Brent crude gained 1.1% to settle at $57.19, following a 1.7% rise in the earlier session.

What to watch: Markets await the EIA’s data on crude inventories, which is expected to decline for the fifth straight week by 2.7 million barrels, following a decline of 8.01 million barrels in the week ended January 1, 2021. Gasoline inventories are likely to increase by 2.70 million barrels, while distillate inventories might rise 2.67 million barrels.

Rising covid-19 cases will remain in focus, with total cases surpassing 91.5 million globally.

Other Markets: European trading indices closed lower on Tuesday, with the FTSE 100, German DAX 30 and French 40 down by 0.65%, 0.08% and 0.20%, respectively.

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Futures at 0400 (GMT)

What else to watch today

     

Germany’s wholesale prices, Turkey’s industrial production, retail sales and motor vehicle production, Italy's industrial production, Eurozone’s industrial production, South Africa’s retail sales, Brazil’s industrial entrepreneur confidence index as well as the US MBA mortgage applications, inflation rate and Fed Beige Book report.