Realty, auto weigh heavy on markets

Thu, 18 Feb 11:30 am

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The Indian markets continued to trade on a weak note during the previous two hours of trade. Currently, selling activity being witnessed in the metal, oil & gas, realty, and auto sectors is weighing heavily on the indices. Nevertheless, the stocks from consumer durables, healthcare, IT, banking and telecom sectors are managing to garner investors' interest.

The BSE-Sensex and the NSE-Nifty are currently trading lower by around 60 points and 20 points respectively. Stocks from the midcap and small cap spaces have managed to buck the trend and are currently trading in the green, with the BSE-Midcap and the BSE-Smallcap indices trading marginally up by 0.04% and 0.23% respectively. The rupee is trading at 46.21 to the US dollar.

According to a leading business daily, India's second largest commercial vehicle manufacturer (by sales) Ashok Leyland is planning to enter into construction equipment business in a joint venture with John Deere (JD). The company will have to compete with the dominant players like Tata Motor's Telcon, L&T, Esscorts, Caterpillar and Komatsu in this segment. Nevertheless, the joint venture is expected to kick off from December 2010. It is setting up a facility in Tamil Nadu with an initial investment of around Rs 3 bn. The testing of products in the market has already started.

It may be noted that the company appears quite confident about the venture and aims to rapidly gain a 15% market share. It has worked on its business model in order to correct few inherent disadvantages faced by existing players. It expects the venture to fetch Rs 3 bn to 4 bn in full year operations in 2011. We believe that given Ashok Leyland's manufacturing and distribution strength coupled with JD's technological expertise, its confidence in the venture is well founded.

As per a leading business daily, HCL Technologies, India's fourth largest IT service provider is betting big on the Middle East IT market. As an attempt to expand its regional presence there, the company has opened its Middle East headquarter at Dubai, UAE. It may be noted that the company already services over 25 large organizations in Middle East which is a major part of company's Asia Pacific (APAC) business. The company derives around 13% of its revenues from APAC business which is growing at a brisk pace. The revenues from this region grew by around 10% in 2QFY10, much better than the developed western markets. We believe the strategy to diversify from the western markets like the US and Europe will go a long way for Indian IT as a major part of the incremental IT investments are expected to come from geographies like Middle East, China and India.