Realty stocks drag markets into red

Thu, 10 Feb 11:30 am

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Indian indices have slipped into the red on the back of sell off in the index heavy weights over the previous two hours of trade. Stocks from the realty and consumer durables sector are trading weak while stocks from the FMCG and power space are trading firm.

The BSE-Sensex is down by 166 points while NSE-Nifty is trading 36 points below the dotted line. BSE Midcap index is down by 1.4% while BSE Small cap index is trading 1.9% below yesterday’s closing. The rupee is trading at 45.55 to the US dollar.

Auto stocks are trading mixed with TVS Motors and Hero Honda trading firm while Escorts and Force Motors are trading weak. As per a leading daily, motor cycle manufacturer Hero Honda is in talks with the Maharashtra government to set up a manufacturing base in Aurangabad. This would be the company’s fourth facility and the first facility outside north India. The choice of plant location is being seen as the company’s strategy to increase its presence in the western markets where Bajaj Auto has its main base. As per sources, Hero Honda is looking to buy 800 acres in the estate of Maharashtra Industrial Development Corporation (MIDC) and has already received the government’s approval for the same. While details of investment into this project are not available, one condition for Hero Honda would be to recruit atleast 30% locals in the factory. It may be noted that Hero Honda has three plants and a 5.5 m units annual production capacity. The company sold 4.4 m two wheelers in the last 10 months and is operating at full capacity. To address the growing demand for two wheelers, Hero Honda needs to add more factories.

Steel stocks are trading weak with Tata Steel and Sesa Goa leading the pack of losers. However, SAIL and Maharashtra Seamless are trading firm. SAIL has finally received a nod from Ministry of Environment (MoEF) to extract iron ore from its Chiria mine in Jharkhand. This will enable SAIL to increase its capacity to 60 m tonnes by 2020. It may be noted that SAIL’s existing iron-ore requirements are not sufficient to meet long term needs. With an approval received to mine ore from an environmentally sensitive region the company will be better placed to meet the long term production capacity targets as around 40% of the iron-ore requirements are likely to be met from Chiria mines over the next 50 years. However, SAIL will have to adhere to various conditions as the mining rights are sanctioned in an ecologically sensitive region. For instance, the company will have to make contribution of Rs 200 m over the next five years towards bio-diversity and wildlife management programme and earmark 2 % of profits towards corporate social responsibility (CSR).