The money seems to be in Midcaps

Wed, 6 Jan Closing

   Previous Close   

   Pre-Open   

   09:30 am   

   11:30 am   

   01:30 pm   

Markets continued to trade volatile right till the end. In the end, they closed higher but only marginally. The BSE Sensex closed the day with gains of around 15 points (0.1%) while the NSE Nifty edged higher by a mere 4 points (0.1%). BSE Midcap and Small cap indices continued to deliver strong performances, closing the day higher by 0.7% and 0.4% respectively. On the Sensex, the advance to decline ratio was nearly evenly split with there being one gainer for every stock that declined.

As far as global markets are concerned, while most of Asia closed higher, majority of the European indices are trading in the red currently. The rupee was seen trading at Rs 45.9 to the dollar at the time of writing.

After spending the first two days of the year in the bull camp, the markets decided to take a breather today. Of course, this assessment applies to the benchmark indices of Sensex and Nifty and not the smaller ones like the BSE Midcap and BSE Smallcap indices. These continued to make merry. And the reasons may not be hard to find. With most of the large caps looking fairly valued from a medium term perspective, the attention seems to have now veered towards the Mid cap and Small cap counters.

Also, investors seemed to have become more risk taking and hence are now willing to allocate more funds to these counters. Our advice to investors would be to practice even more caution while investing in mid and small caps for they no doubt present more growth potential than large caps but at the same time are riskier as well.

FMCG majors like Dabur, GSK Consumer and Agro Tech Foods kept investors interested right till the end today. The buoyancy could be a result of the news in a leading daily that companies in the foods space would go in for either price hikes or grammage reduction exercise in order to preserve margins in wake of higher food prices. With certain key commodities like sugar, cereals, milk and pulses, getting extremely dear, companies that are heavy users of these items are facing huge pressure on their margins. Although these companies tried hard to not pass on the increase to end users by resorting to cost cutting measures in other areas, a still rising trend is making matters difficult and forcing the companies to go in for a price hike or in some cases, reduction in the size of package. This in turn is likely to put pressure on the disposable income of consumers and might also hurt demand.

With a decline of nearly 4%, Maruti emerged as biggest loser on the Sensex today. A spate of launches in the small car space has investors worried perhaps. The ongoing auto expo in New Delhi has witnessed a never before rush of small car launches by the company’s rivals and that too at very attractive price points. Since Maruti derives majority of its revenues by selling small cars, this obviously spells trouble for India’s largest carmaker. It will either have to lower the price of its existing models thus taking a hit on profitability or risk a loss of market share and lower than industry growth rate. In both the cases, its growth prospects could suffer. Although the company has countered that it is looking to maintain its current market share well into 2015 when the country’s car output could be 3 m cars, the target looks more difficult now than during any other time in the company’s recent history.