Maruti bucks the trend

Tue, 9 Feb 01:30 pm

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Persistent buying activity led the Indian market to continue their upward movement during the previous two hours of trade. While buying activity is being witnessed in stocks across sectors, those from the realty and consumer durables sectors are bucking the trend. Stocks from the IT, telecom and auto space continue to lead the pack of gainers.

The BSE-Sensex is trading up by around 115 points (0.7%) and the NSE-Nifty is up by around 35 points (0.8%). Currently, the BSE-Midcap and BSE-Smallcap indices are trading up by 0.4% and 0.6% respectively. The Rupee is trading at 46.63 to the Dollar.

Telecom stocks are currently trading firm led by Bharti Airtel and Idea Cellular. A leading business daily has reported that Bharti Airtel is launching its application stores (known as APP Stores) tomorrow. This will make it the first Indian company to enter this space. This venture allows mobile users to download and use the various kinds of applications offered by the respective provider. Bharti is expected to go live with about 1,200 applications. This, however, is a very small number when compared to global majors (considering that there are no players in this space present in India). For instance, BlackBerry's APP store offers over 4,000 apps, while Google's Android offers over 20,000 apps.

However, this move by the Indian telco is towards its long term strategy - to increase the contribution of its non-voice revenues. As per Gartner, app stores globally raked in over US$ 4.2 bn in revenues last year. It expects this figure to rise to about US$ 30 bn by 2013. It must be noted that this concept has not really taken off in India till now. However, Bharti Airtel's management expects it to do well on the back of it offering applications independent of handsets and operating systems.

Auto stocks are currently trading firm led by Hero Honda, Tata Motors and Eicher Motors. The stock of Maruti Suzuki is however trading weak on the back of its management expecting tough times ahead. A leading business daily has reported that the company's management is expecting margins to come under pressure during the next fiscal. The reasons for the same are the rising input costs as also the withdrawal of the government's incentive programs. The company's management is not able to give an indication as to what the margins would look like in the next year. However, it is sure of the same being volatile from the current quarter. During the quarter ending the company reported an operating margin of 15.1%, which is way higher than that of 6.4% in 3QFY09. As for 9mFY10, operating margins stood at 13.4% as compared to 9.6% during 9mFY09.

Considering that auto sales volumes have been touching new highs month after month, the Indian growth story in automobiles does remain intact. However, we do believe that factors such as the intensifying competition (both domestic and international players) and rising interest costs coupled with the reasons mentioned above may impact domestic auto companies, including market leader Maruti.