The Star Online: Business
The Star Online: Business |
- Under pressure Infosys recalls Narayana Murthy as chairman
- China May official PMI stronger than expected
- Wall Street Week Ahead: Good news on jobs may be bad for stocks
| Under pressure Infosys recalls Narayana Murthy as chairman Posted: 01 Jun 2013 03:04 AM PDT MUMBAI: Indian IT services firm Infosys Ltd, grappling with a string of disappointing results and loss of market share, has recalled founder and former chairman N.R. Narayana Murthy to act as executive chairman for five years. He replaces current chairman K.V.Kamath, who will become lead independent director, effective June 1. The current executive co-chairman S. Gopalakrishnan will be re-designated executive vice chairman, while current chief executive officer S.D. Shibulal will remain in his position, Infosys said in a statement on Saturday. "The board has taken this step keeping in mind the challenges that the technology industry and the company faces," Kamath said in the statement, also acknowledging calls from shareholders to strengthen executive leadership of the company. Infosys said it will put the matter before shareholders at its annual general meeting on June 15. The company, for years an investor favorite for exceeding its earnings targets, has struggled in the past two years as its big customers in the U.S. and Europe cut costs and seen rivals such as Tata Consultancy Services and HCL Technologies Ltd take away market share. In April, Infosys forecast full-year sales growth that missed analyst expectations by a margin of up to 50 percent, pushing down its shares to their lowest close in a decade. "This is a drastic, some might say, welcome move," said Ankur Rudra, sector analyst at Ambit Capital, which has a "sell" rating on the stock. "Probably, this could be a step towards a new strategic direction and leadership as well." The company's troubles have spurred criticism of everything from its method of choosing CEOs to its pricing strategy to what is seen as an insular and risk-averse culture. Chief executive Shibulal is one of the seven engineers who launched the company in 1981 by pooling together $250. All four CEO's so far have been from this group. Murthy, who has earlier served on the board of HSBC and Unilever, said the calling was "sudden, unexpected and most unusual," while accepting the position. He also requested the Infosys board to appoint his son Rohan Murthy as his executive assistant for a period of five years. Shares in Infosys closed 3 percent higher on Friday, ahead of the announcement. The stock is up 4 percent so far in 2013, compared to a nearly 7 percent increase in the sectoral index. - Reuters |
| China May official PMI stronger than expected Posted: 01 Jun 2013 03:02 AM PDT BEIJING: China's official PMI rose to 50.8 in May from 50.6 in April, data showed on Saturday, beating market expectations and raising optimism that the world's second-largest economy may be stabilising. Investors will get a fuller picture of the Chinese economy on Monday when the official services PMI is released along with the final HSBC survey that focuses on smaller private sector firms in the country. The official purchasing managers' index (PMI), issued by the National Bureau of Statistics and China Federation of Logistics and Purchasing, indicated activity in China's vast manufacturing sector picked up slightly in May. The reading was stronger than market expectations of 50.1 in a Reuters poll. A reading above 50 indicates expanding activity while a reading below that level points to a contraction. "The slight pick-up in May PMI reinforces signs of stabilising of the economy," Zhang Liqun, an economist at the Development Research Centre, a top government think tank in Beijing, said in an emailed statement accompanying the index. China's annual economic growth slowed to 7.7 percent in the first quarter from 7.9 percent in the previous quarter, despite a credit boom fuelled by the thriving shadow financing. A sub-index measuring new orders inched up to 51.8 in May from 51.7 in April, indicating stronger demand for Chinese goods. A sub-index of new export orders also edged up to 49.4 from 48.6. Saddled with excess capacity, China's factories are struggling against weak demand, as Beijing's campaign against extravagance among state officials takes a toll on domestic consumption. A flash private PMI survey released last week by HSBC showed China's manufacturing sector shrank for the first time in seven months in May as new orders fell, an unexpectedly poor outcome that caused a rout in global financial markets. The official PMI, which focuses on big and state-owned firms, has been generally rosier than the private survey, which targets small and private companies. The International Monetary Fund this week cut its 2013 economic growth estimate for China to 7.75 percent from 8 percent, while the OECD slashed its 2013 growth forecast to 7.8 percent from a previous forecast of 8.5 percent. Many private economists have lowered their estimates following soft factory output and investment performance data for April and weak factory activity in May. The economy's lack of vigour could make it difficult for the government to meet its 7.5 percent growth target for this year, analysts said. Chinese leaders are reluctant to roll out fresh stimulus steps to support the economy, as they fear increased state spending could lead to a further acceleration of credit expansion and fuel a property bubble. Premier Li Keqiang said last month that China has limited room to use government spending and policy stimulus to boost its economy, though Beijing has been pushing structural reforms in put the economy on a sounder footing. - Reuters |
| Wall Street Week Ahead: Good news on jobs may be bad for stocks Posted: 01 Jun 2013 03:00 AM PDT NEW YORK: Standing conventional stock market wisdom on its head, investors may wish for weaker-than-expected U.S. employment numbers next Friday. A strong jobs report could prompt an early end to the Federal Reserve's policy of pumping money into the banking system to rescue the economy and set off the stock market's long-awaited pullback. The Fed's loose monetary policy since the end of 2008 has kept interest rates low and propelled stocks to record highs. Last week, stocks fell and bond yields surged after Fed Chairman Ben Bernanke said the U.S. central bank may decide to taper its stimulus programs in the next few policy meetings if data shows the economy is gaining traction. Stocks posted their second straight week of losses on Friday, mostly on fears that the Fed would curb its bond-buying program sooner than most people expected. "We're in a mindset where the market seems to be very fearful of the Fed beginning a tapering," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. "Those who are in the market based on easy money ... will probably exit" if the May jobs number exceeds expectations, she said. The market has managed to climb this year without any substantial pullback. Concerns about the Fed's next move have increased speculation that a major bout of selling is ahead. A stronger-than-expected jobs number "would continue to produce the concerns you've seen manifested in the market over the last couple of days," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, which manages about $58 billion in assets. Economists say job gains of at least 200,000 per month over several months are needed to significantly reduce high unemployment. The Fed has said it will keep interest rates at historic lows until the U.S. unemployment rate drops to 6.5 percent. Employers are expected to have added 168,000 jobs to their payrolls in May, according to economists polled by Reuters. That's slightly above April's count of 165,000 new positions. The U.S. unemployment rate is expected to hold steady at 7.5 percent in May. To be sure, better-than-expected jobs data would be evidence of strength in the economy, a positive for the market in the long run, so any pullback could be short-lived, analysts said. "If it's a short-term correction, I think that would have to be opportunistic, in the sense that investors should take advantage of moving any sideline money into the equity market," Luschini said. Even with the recent losses - the Standard & Poor's 500 index <.spx> fell 1.1 percent this week - the index rose 14.34 percent for the first five months of 2013. That gain marked the S&P 500's best first five months of any year since 1997. DITCHING DIVIDEND STOCKS A rotation out of high-yielding dividend stocks has already begun because of the rise in U.S. Treasury bond yields. Dividend stocks had been among the market's leaders for much of this year's rally as investors favored those shares over fixed-income securities in a low interest-rate environment. "The first crack we've seen is, as bond yields have been going up, people are moving out of that area," said Eric Kuby, chief investment officer of North Star Investment Management Corp., in Chicago. "Managers are starting to look at things other than consumer staples with nice dividends and stable businesses. So within the stock market, you're seeing more volatility within sectors." The S&P 500 gained 2.1 percent for the month of May, while the S&P utilities sector index <.splrcu> lost 9.6 percent and the S&P consumer staples index <.splrcs> dropped 2.4 percent. The spread between the S&P 500 dividend yield and the 10-year U.S. Treasury note's yield this week hit its narrowest in about a year. The S&P 500 dividend yield was at 2.39 percent, while the 10-year note's yield hit 2.235 percent during the week. By comparison, the dividend yield on the utilities sector stands at about 4 percent. The move out of dividend-paying and other defensive shares should continue as the economy improves, Kuby said, though he pointed out that the market is still a "long way" from seeing high interest rates. "The fact that rates are likely to creep up over time, that's a given. And it's not going to be sudden or dramatic. It's going to be more gradual." IT'S RAINING NUMBERS Next week will bring a snapshot of U.S. manufacturing activity from the Institute for Supply Management, which releases its May index on Monday. Economists polled by Reuters expect a reading of 50.5 for May, compared with 50.7 in April. Monday's economic agenda also calls for April construction spending - forecast up 0.8 percent after a drop of 1.7 percent in March. Domestic car and truck sales for May, also expected on Monday, are projected to have increased to 15.1 million units from April sales of about 14.9 million units, the Reuters Poll showed. The U.S. international trade deficit, set for release on Tuesday, is forecast to have widened slightly to $41 billion in April from $38.8 billion in March. A preview of the jobs picture will come on Wednesday with the release of a report from payrolls processor ADP. Economists polled by Reuters have forecast that the ADP data will show private-sector employers added 165,000 jobs in May, compared with 119,000 in April. Wednesday's numbers to watch will include the ISM's release of its U.S. services-sector Purchasing Managers' Index for May. A reading of 53.4 is forecast for May, up from April's 53.1. The Fed's Beige Book is expected on Wednesday afternoon. That report will give a look at the economy in 12 regional Federal Reserve bank districts. On Thursday, initial claims for unemployment benefits will grab attention - on the day before the big payrolls report from the U.S. government. Initial jobless claims are projected to have slipped to 345,000 in the week ended June 1 from 354,000 in the previous week. - Reuters |
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