Midcaps and small caps outshine

Wed, 10 Feb 11:30 am

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After opening on a positive note, the Indian markets quickly slid back into the negative on account of profit booking among index heavyweights during the previous two hours of trade. However, buying activity among consumer durables, realty, metal and auto stocks is trying to cheer up the markets. Currently, selling activity is being witnessed in sectors like banking, FMCG, capital goods and power.

The BSE-Sensex and the NSE-Nifty are currently trading lower by around 47 points and 20 points respectively. Stocks from the midcap and small cap spaces have managed to buck the trend, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 1.1% and 1.3% respectively. The rupee is trading at 46.59 to the US dollar.

According to a leading business daily, India's second largest commercial vehicle manufacturer, Ashok Leyland is looking to recoup its Rs 11 bn worth capital investment in its Pantnagar plant in the next 4 years all through savings on excise duty. It may be noted that as an incentive to promote industry in the northern state of Uttarakhand, the auto makers that set up manufacturing units there are exempted from 8% Central excise duty for 10 years. Moreover they are also offered an income tax holiday for the first five years and a 30% discount for the next five. The company expects this saving to help it recoup all of its capital expenditure in bringing up this plant which has an annual capacity of 50,000 units. We believe that the company which had a single truck manufacturing facility only in Hosur will also gain in terms of cost savings by being closer to the markets in the northern, western and eastern India.

Power Finance Corporation is planning to focus more on private business and will float two new subsidiaries in the short term. The company plans to hive off its renewable energy business and consortium lending in early next fiscal in order to leverage the current investment boom in green energy projects and diversify its asset base. It may be noted that lately the government is ramping up private participation in large power projects. As a result the contribution of private sector projects in the country’s installed power generation capacity is expected to grow to over 16% by March 2012 from 12% witnessed at the end of the Tenth Plan Period i.e. March 2007. PFC plans to capitalize on this growth by forming the syndication required to finance big power projects. It finances around 25% to 35% of the overall project costs to the private sector and around 80% to the public sector power players. We believe that a focus on these areas will further aid the company in sustaining reasonable margins and good asset quality going forward.