Consumer durable stocks drag markets

Fri, 28 Jan 11:30 am

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Indian indices after opening the day in the red slipped further on profit booking in heavy weights over the previous two hours of trade. Stocks from the consumer durable and auto space are trading weak while stocks from the IT space are trading firm.

The BSE-Sensex is down by 209 points while NSE-Nifty is trading 69 points below the dotted line. BSE Midcap and BSE Small cap indices are both down by 2.5%. The rupee is trading at 45.69 to the US dollar.

FMCG stocks are trading weak with Camlin and Dabur leading the pack of losers. However, HUL and Gillette Ltd. are trading strong. Amidst rising input costs, Marico has undertaken several price hikes on its flagship brands Parachute and Saffola. The company has collectively taken a 24% price hike on Parachute over the last two quarters while an additional 8% hike is in the process of being implemented. On Saffola too, the company has hiked the prices by 10-15% over the last two quarters. However, from here on the company has decided to take a hit on margins rather than increasing the product prices and taking a risk of losing market share to rival companies.

It may be noted that the consumer purchases have already been impacted by rising food inflation and if the company decides to further increase prices from current levels, customers may resort to down trading thereby impacting the market share of the company. Hence, it has decided to take a temporary hit on margins in order to keep its market share intact as regaining lost customer is a difficult task than regaining lost margin.

Auto stocks are trading weak led by M&M and Tata Motors. As per a leading financial news company, Tata Motors may expand sales of Nano to Thailand, Sri Lanka and Bangladesh this year. The company is expected to enter these markets one after another. Nano sales are expected to climb to 8,000 to 10,000 units a month soon. It may be noted that the current rate is 6,000 to 7,000 cars a month, up from 509 units sold in November. Sales dipped in November due to increase in price of the unit, long waiting period and concerns regarding fire safety. However, Tata Motors took several measures to boosts sales which have shown positive results. These measures include offering 100% financing to customers who can't afford down payment, doubling of warranty to four years or 60,000 kilometers, running advertisement campaigns and adding sale points. The company also addressed the fire safety concern of the car by offering additional protection in exhaust and electrical systems.