Banking and PSU rally the indices

Tue, 11 Jan 11:30 am

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Indian indices lost some of their opening gains on profit booking in heavy weights over the previous two hours of trade. Stocks from the banking and PSU space are trading firm, while stocks from the realty and IT space are trading weak.

The BSE-Sensex is up by 120 points while NSE-Nifty is trading 40 points above the dotted line. BSE Midcap is trading up by 0.2% while BSE Small cap index is trading 0.3% above yesterday’s closing. The rupee is trading at 45.34 to the US dollar.

Auto stocks are trading firm led by Bajaj Auto and Hero Honda. As per a leading financial daily, Mahindra & Mahindra (M&M) is betting on its auto business to continue its growth momentum in FY12. For this the company plans to launch not only new products but also variants of existing products. This, the company believes, will help it generate volumes. It may be recalled that in FY11, M&M had acquired SsangYong and Reva. The company expects to use the technology from SsangYong to become a global SUV player. Similarly, M&M plans to use the technology from Reva to launch NXR cars. It is also exploring the option of extending the Reva technology to other vehicles like Gio and Maxximo pickups.

The key challenge M&M faces in FY12 is maintaining its leadership position in the Indian SUV segment while exploring overseas opportunities. Furthermore, increasing costs continue to be a concern. In FY11, the company managed to absorb costs as it was compensated by high volume growth. However, in the absence of high volume growth in the next fiscal, the company would be forced to pass on rising costs. Another concern the company has for the coming fiscal is tightening interest rates and liquidity crunch.

Engineering stocks are trading mixed with Bharat Bijlee and Punj Llyod leading the gains. However, Sanghvi Movers and Areva T&D are trading weak. Recently, Greaves Cotton has won a 10 year contract from Tata Motors to supply small diesel engines for its new half tonne truck - Ace Zip. The new truck is expected to be launched in the first quarter of this fiscal. Greaves Cotton has developed a 600 cc engine for Ace Zip and has plans to supply CNG engines for the truck as well. It may be noted that right now the company caters to the diesel engine requirements of the majority of three wheelers including Piaggio, M&M, Atul Auto and Scooters India. The company also plans to build a new engine manufacturing plant in Aurangabad at an investment of Rs 1 bn in order to meet the growing demand of engines. Setting up a new plant will take the company’s total automotive engine capacity to about 0.4 m units pa.