Metal & realty stocks find favour

Thu, 11 Feb 01:30 pm

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Although trading well above the dotted line, the Indian markets did witness certain amount of volatility during the previous two hours of trade. However, the market sentiments remains positive as the overall advance to decline ratio is poised at 1.8 to 1 on the BSE. Buying activity is being witnessed in stocks across sectors led by metal, realty and banking stocks. Stocks forming part of the power and healthcare spaces are currently amongst the lowest gainers.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 220 points (up 1.4%) and 70 points (up 1.5%). The BSE-Midcap and BSE-Smallcap indices are trading higher by around 0.9% each. The rupee is trading at 46.43 to the dollar.

Paint stocks are currently trading mixed with Asian Paints and Kansai Nerolac trading weak, while Berger Paints is trading firm. At the time of writing, only 9 stocks out of the BSE-100 index were trading in the red. The stock of Asian Paints was leading this pack. This seems to be primarily on account of profit booking due to the stock's expensive valuations currently. It must be noted that the stock has risen by about 180% since the low that it touched in March 2009. The key reason for this rise is its strong financial performances over the past few quarters. For instance, during the quarter ending December 2009, the company reported a 23% YoY growth in revenues. However its operating profits grew by a staggering 188% YoY on the back of an 11.3% YoY expansion in margins. The lower input costs have aided the performance of Asian Paints so far in FY10.

While the company may continue to record a good growth on the topline front, we believe that it would be difficult for the company to sustain such high margins in the future. This will especially hold true with an increase in input costs.

Pharmaceutical stocks are currently trading firm led by Orchid Chemicals, Ranbaxy, Aurobindo Pharma and Panacea Biotec. A leading business daily has reported that Ranbaxy will start selling products of its parent company, Daiichi Sankyo, in Mexico sometime in the future.

For Ranbaxy, this would translate as higher revenues considering its parent company will be using its distribution network to sell the products. It must be noted that this is precisely the reason for Daiichi to acquire Ranbaxy (which took place way back in 2008), apart from taking advantage of Ranbaxy's low cost manufacturing facilities. Although the companies have not disclosed the market size for these products, it is believed that the said drugs are Daiichi's flagship products and are already available in over 50 countries worldwide.