Markets begin on a volatile note

Tue, 16 Feb 09:30 am

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The Indian markets have started today's session on a volatile note. The benchmark indices opened above the breakeven mark but soon fell into the negative territory. Other key Asian markets are trading in the green with South Korea (up 0.8%) leading the pack of gainers. The US markets remained closed yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with auto and metal stocks witnessing buyers' interest. However, select software heavyweights are in the red. The BSE-Sensex is trading lower by around 4 points, while the NSE-Nifty is down by about 3 points. However, buying interest is being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.1% and 0.3% respectively. The rupee is trading at 46.34 to the US dollar.

Retailing stocks have opened the day on a mixed note. Gainers here include Pantaloon and Trent. However, Shoppers Stop is in the red. As per a leading business daily, retail major Shoppers Stop plans to open 18 new department stores over the next three years. It currently has 29 department stores. In terms of retail space, the company will add 1 m square feet (sq ft). This would be fastest capacity addition in the company's nearly two-decade history. The expansion will require investments to the tune of Rs 3 bn. The company plans to raise Rs 3.5 bn by March 2011, mainly through qualified institutional placement (QIP). In our view, the expansion is clearly aimed at catching up with the competition. The company has 1.9 m square feet (sq ft) of retail space as compared to 10 m sq ft of Pantaloon Retail, 4 m sq ft of Reliance Retail and 2 m sq ft of Aditya Birla Retail. However, the key will be profitable expansion as some retail formats have worked well in India in the past while others have only managed to burn cash.

Cigarette stocks have opened the day on a positive note. Gainers here include ITC and VST Industries. As per a leading business daily, India's largest cigarette maker, ITC has increased the price of Gold Flake Kings cigarettes by 7%. A pack of 10 cigarettes will now cost Rs 47, up from Rs 44 earlier. It may be noted that the company had hiked the prices of its two other brands, India Kings and Benson & Hedges, by Rs 10 and Rs 5, respectively late last year. Apparently, the move is a proactive measure ahead of the Union Budget. The government has steadily raised taxes on cigarettes in a bid to reduce consumption. However, despite high government intervention and campaigns against smoking along with high tax rates, the company has managed to grow its cigarettes business at a CAGR of 10% between FY02 and FY09. Hence, we do not expect the price hike to affect the segment's performance going forward.