Commodities weigh heavy on indices

Fri, 5 Feb 11:30 am

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Unabated profit booking activity in index heavyweights compelled the benchmark indices to languish below the dotted line during the previous two hours of trade. Currently, extensive selling activity is being witnessed across the board led by stocks from the realty, metal, banking, and consumer durable sectors.

The BSE-Sensex is trading lower by around 366 points and the NSE-Nifty is down by around 108 points. The midcap and small cap stocks are bearing the brunt of profit booking. Currently, the BSE-Midcap and BSE-Smallcap indices are trading down by 2.70% and 2.95% respectively. The Rupee is trading at 46.56 to the Dollar.

As per a leading business daily, India's second largest cement company, ACC is aggressively scouting for acquisition opportunities in order to expand as well as maintain its market share. It may be noted that the company acquired two plants (1 each in Himachal Pradesh and Visakhapatnam) last week. More of such small and mid-sized acquisitions are expected to be done in the current quarter.

The company is planning to acquire 45% stake in Asian Cement in order to strengthen its presence in the northern markets. Asian Cement which has a grinding capacity of 0.3 m tonne per annum (mtpa) in Himachal Pradesh is also setting up additional 1 mtpa capacity there. Though the exact valuations of the company are not revealed yet, it is expected to come at a good bargain as against setting up new greenfield capacity in the area. It is worth noting that setting up a greenfield capacity in the northern region costs around US$ 110 per tonne, almost double the cost in southern India. ACC has 17% market share in the north Indian markets. However, it did not have any plant in the area. It is believed that this acquisition will help the company in saving cost as the lead distance will reduce by 50 to 60 kms.

As per a leading business daily, India's largest engineering company, L&T is planning to redesign its joint venture with EADS, a Franco-German aerospace and defense group in order to clear the foreign direct investment(FDI) hurdle. It may be noted that the government previously rejected the joint venture as it exceeded the 26% cap on FDI in the defense sector. The two companies are now redesigning the equity structure wherein L&T will hold 74% stake in the venture, with the remaining stake left with EADS.

This JV is aimed at tapping the growing opportunities in the Indian defense sector as well as those of other countries. It will make electronic warfare systems, radar instruments and avionics. L&T expects to earn Rs 25 bn in revenues over the next 5 years from this joint venture. It already earns Rs 4 bn from defense business. We believe that this move will augment company's aggressive plans for the Indian defense sector where the government has planned a military procurement budget of over US$ 30 bn over the next 5 years.