Realty weighs on the markets

Thu, 17 Feb 09:30 am

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Asian markets have started the day on a mixed note. On one hand, markets in Indonesia (up 0.4%) and Japan (up 0.4%) are trading in the green. On the other hand, markets in China (down 0.5%) and Hong Kong (down 0.3%) are witnessing the onslaught of the bears. Indian markets have opened the day in the negative. Realty and power stocks are dragging the markets down.

The BSE-Sensex is trading lower by around 31 points (0.2%), while the NSE-Nifty is down by around 8 points (0.1%). Mid and small cap stocks are trading in the positive however, with the BSE Midcap and BSE Small cap indices up by about 0.03% and 0.3% respectively. The rupee is trading at 45.43 to the US dollar.

Hindalco Industries is all set to make high-margin can sheets for global buyers. This would be made in its subsidiary, Novellis’ Hirakud facility. The thin aluminium sheets are used in the packaging of beverage products. The sheets accounted for 55-60% of Novellis' shipments last year. This is an attractive segment as the sheets are priced at a premium of almost 30-40% over the base grade aluminium products. This was the main reason behind Hindalco's acquisition of the company in 2007. Hindalco will primarily be targeting the export markets with the product. The plant at Hirakud, which will be using the equipment from Novellis' UK facility, would be commissioned in October this year. The project will also enable Hindalco to manufacture can body stock for the domestic market. To start with, Hindalco is setting up an initial capacity of 140,000 tonnes of can body stock and will later expand it to 500,000 tonnes. The move to market the thin aluminium sheets is expected to boost the margins of Hindalco. It would help the company in insulating its margins from any adverse movements in the global aluminium prices as well as in spike in the input costs. The company's stock is currently trading in the red. Other metal majors witnessing negative interest are Nalco, Jindal Steel and Sterlite Industries.

Energy stocks have opened the day on a negative note. IOC, BPCL and HPCL are the biggest losers. Reliance Ind (RIL) is planning major investments of about US $25-30 bn (well over Rs 1 trillion) over the next five years. These investments would be mainly targeted at petrochemicals, exploration and production, and telecom businesses of the conglomerate. As per the proposed capital expenditure, the company would invest about US $10-12 bn in petrochemicals. Another US $10 bn (over Rs 450 bn) would be spent on exploration and development of discoveries already made in shale gas in India and the US. The company would invest US $4.5-4.7 bn (over Rs 200 bn) in telecom over the next five years. RIL has already spent $ 2.8 bn on acquiring 4G licenses and spectrum through its acquisition of Infotel Broadband Services. Infotel was the only entity to get pan-India license in the auction of Broadband Wireless Access spectrum conducted by the government last year. The giant conglomerate is currently in the process of finalizing arrangements for its 4G (fourth-generation) telecom service offerings.

In the next 5-10 years, the company expects petrochemicals, refining, E&P, retail and telecom to be its five prime businesses.