It was a week in which market fears about a lower guidance from Infosys came true. Investors had developed some doubts about the immediate future of technology companies last week itself. However, not many would have anticipated the severity of the fall with the indices losing more than three per cent each on a single day on Friday.

Global markets also lost substantial ground during the week as weakness spread from the US to right across Asia. US indices declined on four sessions out of five during the week to touch recent lows. Most Asian markets have lost close to 10 per cent from their recent highs as investors worry about rising interest rates, crude oil and slowing growth in major economies.

After last week's decline of close to 10 per cent from its all-time highs, crude oil continued to trend weaker this week as well. On Thursday, crude futures went below the $50-mark before recovering to close above $51. On Friday, prices declined further to settle at $50.49, a decline of more than 15 per cent from the peak two weeks before.

Inflation for the week ended April 2 rose to 5.26 per cent as against 5.05 per cent for the pervious week. The increase in the index was mostly on account of higher aviation fuel and naphtha prices. The prices of manufactured and food items also went up as non-food and edible oil prices declined. Economists believe the real inflation rate should be above 6 per cent and is kept low by the much delayed petroleum price hike.

Centre for Monitoring Indian Economy (CMIE) expects the Indian economy to grow by 6.6 per cent in FY 2005-06 on the back of better performance by agricultural sector which is expected to grow 3.1 per cent. Industry growth is expected to be 8.5 per cent while services sector growth is projected to be 7.5 per cent. Research agencies expect this year's monsoons to be above normal and will hit the Kerala coast on May 26.

The economic data for the month of February os disappointing to say the least. The 'index of industrial production' growth fell dramatically to 4.9 per cent from the 7.5 per cent posted for the pervious month and 8.3 per cent posted during February of last year. The fall in growth was mainly on account of a decline in mining, which had posted double digit growth during last year. A deceleration in February is worrying as it would be that much more difficult to recover the growth momentum on the face of rising input costs, especially oil prices.

Infosys' annual guidance is probably the most important corporate event in the stock market calendar. Over the years, this statement has generated great interest with analysts trying to figure out even the body language of the senior management of Infosys.

Such a huge following has more to do with the company itself, which has rarely missed guidance targets and most often bettered them. Unlike many other companies who give forward looking statements and later come around and say sorry, Infosys has always been conservative in its guidance and has always delivered on its promises. So, why all the disappointment this time?

The reasons are fairly obvious. After recovering from the dotcom bubble burst, technology companies the world over have had a good run with increasing technology spending by the corporate sector and governments. Indian software companies benefited the most from this up turn as they rode the outsourcing wave into India as well. After two years of economic growth, the US is beginning to hit a plateau as high oil prices and rising interest costs are affecting consumer spending. Some of the major companies are tightening their technology budgets and IT companies do not expect significant growth opportunities in the short term.

Making matters worse, large companies in the US are preoccupied in complying with regulatory requirements imposed after the corporate accounting scandals. The fresh round of technology sector worries started with IBM, the world's largest IT services company, reporting lower than expected results for the quarter ended March 2005 and indicating slowing growth in the immediate short term.

This warning from IBM hit all technology stocks on NASDAQ and pulled down the US markets to four month lows this week. Now the street is keenly anticipating the results from other technology heavyweights like Intel and Texas Instruments next week.

On its part, Infosys expects FY 2005-06 revenues to rise between 28 and 30 per cent in dollar terms and profits to grow between 23 and 25 per cent. For a company with revenues of close to $2 billion, this would be considered a scorching growth rate under normal circumstances. But Infy is no ordinary company and the psychological impact it has on Indian markets is enormous.

It enjoys the highest valuation among IT stocks and trades on the NASDAQ at a massive 40 per cent premium to domestic prices. Part of this high valuation was on account of the very high growth rates the Indian IT sector, and Infosys in particular, has been posting over the last two years or so. Now that the company has given a lower guidance, part of that higher valuation was not justifiable and hence got adjusted in the stock price decline.

But all is not over. Infosys is known for its very conservative guidance and generally prefers to give lower projections and then turn in a better performance. Except once after the tech crash, the company has never revised its guidance downwards. There are many who believe that the company will revise its guidance upwards later in the year. Most brokerages, including some influential foreign brokerages, still keep a buy call on Infosys. It would be interesting to see the guidance from other IT leaders like TCS and Wipro.

Corporate moves

• Jet Airways started its service to Singapore from Mumbai this week. The company is launching services to Kuala Lumpur next month to be followed by London. The private airline has applied to the government to operate multiple flights to US destinations as well. The open skies agreements signed by India with the US and UK this week will enable Indian carriers to launch more services to these markets. Jet has tied up with South African Airways to offer connecting services to each other's customers in their respective domestic markets. Jet is also taking on lease wide bodied jets from the South African airline to service international routes.
  
• International rating agency Standard & Poor's has revised its offer price for Crisil to Rs775 per share from the earlier Rs680. The offer is conditional upon S&P receiving a controlling 51 per cent stake in Crisil. It already holds close to 10 per cent stake in Crisil. ICICI Bank has decided to tender it's close to 10 per cent stake and other institutional investors like LIC and UTI are studying the offer.
  
• VSNL received approval from US security agencies for its take over of the under sea telecom cable network of Tyco Global. The company has postponed the de-merger of its real estate assets into a separate company. Ratan Tata stepped down as the company's chairman to take direct responsibility of the Tata group's multiple telecom ventures.
  
• Bharti Televentures plans to increase its fixed line service coverage from the current 6 circles to 23 circles in the next one year. The company is targeting a customer base of 50 million in the next few years. The promoters said they may dilute their holdings in the company to fund other businesses like airport development and commercial farming.
  
• Oriental Bank of Commerce is planning to merge Global Trust Bank into itself in the near future. The bank is setting up a $100-million joint venture with Bank of Baroda and Bank of Maharashtra to start banking operations in Malaysia. Bank of Baroda will come out with a public issue of 7.1 crore shares in the near future. BoB is looking at acquisitions in Asia and Africa and is also planning to enter the insurance business.
  
• Television Eighteen, which runs the CNBC-TV18 channel, is planning to raise funds up to $50 million for funding expansion plans including a new general news English channel. The company says it's recently launched Hindi channel, Awaaz, would break even faster than expected. In a related development, two top executives including a star anchor of rival NDTV has resigned and are reportedly joining TV18.
  
• Essel Propack, part of the Subhash Chandra-promoted Essel group, is acquiring UK-based Telcon Packaging to enhance its presence in European markets. Essel Propack is the world's largest manufacturer of flexible laminated packaging tubes.
  
• Software company Helios & Matheson is acquiring the vMoksha group of companies for $19 million. The deal covers the vMoksha companies in India, US and Singapore which together has over 500 employees.

Outlook: Even though the tech outlook is not so promising, there are sectors which would perform well like infrastructure, capital goods, banking and cement. However, weak economic data for the months of March and April could possibly induce some overseas investors to pull out. This would lead to a weak market in the first quarter, more so if global markets continue to remain weak. Thereafter the market direction would depend on the monsoon and the first quarter results due in July.

Other articles by Rex Mathew

List of general reports on markets

List of general reports on finance