Good start to 2011

Mon, 3 Jan 09:30 am

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Asian markets have started 2011 on a positive note. Hong Kong (up 1.5%) and Singapore (up 1.1%) are leading the pack of gainers. Markets in China and Japan are closed today. Indian markets have started the year on a positive note as well. Auto and metal stocks are driving the gains currently.

The BSE-Sensex is trading higher by around 145 points (0.7%), while the NSE-Nifty is up by about 40 points (0.7%). Mid and small cap stocks are trading in the positive as well, with the BSE Midcap and BSE Small cap indices up by 0.9% and 0.8% respectively. The rupee is trading at 44.75 to the US dollar.

Auto stocks have opened 2011 on a strong note. M&M, Tata Motors and Bajaj Auto are the key gainers as of now. India;s auto sales numbers for the month of December 2010 are out. And the broader picture looks good. Sales picked up for most companies (that released their numbers) during the said month. This was largely a result of year-end discounts and promotions apart from buyers; anticipation of price hikes in the New Year. Talking about specific companies, the passenger vehicle (PV) volumes for Tata Motors were up 28% YoY during the month. Sales of Nano were up around 60% YoY, though on a low base. M&M;s PV volumes also showed a 28% YoY growth during December. Other major auto players like Maruti, Hero Honda, and Bajaj Auto will be releasing their sales numbers later this week. Talking about price hike, most auto companies have talked about raising their product prices in January to counter the impact of rising commodity prices that has hurt their margins off late. Commodities like rubber, steel and aluminium form a major portion (almost 60%) of a vehicle;s total cost in India and thus it has become necessary for these companies to pass on the cost price hike to consumers. Apart from this, interest rates on loans are also expected to rise in the coming months. Amidst this, it would be interesting to see how auto companies perform over the short to medium term.

Metal stocks have opened in the green as well. Hindalco, Sterlite and Tata Steel are all witnessing buying interest. Tata Steel has outlined its plans to sign a joint venture (JV) agreement with Japan based Nippon Steel Corporation. The JV would be setting up a Rs 240 bn steel plant for producing auto grade steel. The facility is expected to start operations in Jamshedpur within the next two years. The JV would be set up with a 50:50 investment by both parties. The plant is being set up to cater to the ever growing demand for steel from the Indian auto industry. Nippon would be transferring its technology into the JV. The company is the second largest steel maker in the world after Arcelor-Mittal. Tata Steel is also in talks with Canada based New Millennium Capital for extending its agreement to develop iron ore mines in Canada. The agreement had expired on the last day of 2010. Tata Steel holds 27.3% stake in New Millennium.