Markets continue to trade in the red

Mon, 15 Feb 01:30 pm

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Indian markets continue to trade below the dotted line. Stocks in the health care, IT and metal space are trading in the positive while stocks in the consumer durable, realty and banking space are witnessing a sell-off.

BSE-Sensex, having recovered from the day’s lows was trading low by 60 points while NSE-Nifty was lower by 18 points. BSE-Midcap Index is trading lower by 26 points while the BSE-Smallcap index is trading virtually flat. The rupee is trading at 46.32 to the US dollar.

HUL has started to feel the heat in the low-end filter water purifier segment. The company, which is the volume leader in this space with a sale of 1.3 m units last year, is being challenged by Eureka Forbes and Tata. While Eureka Forbes is the pioneer in the electric water filter space, it did not have a brand to challenge the might of HUL’s Pure-it till now. However, Eureka Forbes is set to launch a new brand to enter this segment. Meanwhile, Tata has entered the market with ‘Swach’ at a price of Rs 999. This is lower than HUL’s ‘Compact’ filter which is priced at Rs 1,200. What is attracting players to this segment is the double digit growth rate seen since the last few years. The total market is said to be worth Rs 12 to Rs 15 bn and is growing at 20% YoY. This market has infact doubled in the last 4-5 years. We believe that while the companies are engaging in price war, the quality of water delivered will be the deciding point in this war.

Although rubber prices have been moving north the past few months due to rising crude oil prices, they have not significantly affected the margins of tyre companies as yet. The reason is that companies like Apollo Tyres and MRF reaped the benefit of low cost inventory which they had piled up. Moreover, the tyre companies took a price hike which offset the price increase. However, the March quarter is expected to be difficult as the companies have exhausted their inventories and are exposed to higher raw material prices. While the demand for tyres is buoyant on the back of strong growth in the auto sector, we believe that tyre companies will not be able to pass on the entire price increase. This is especially true in the case of Apollo tyres as a large part of its revenues is derived from replacement tyre market which is more competitive than the OEM market.