Small and midcaps fail to cheer

Tue, 23 Feb 11:30 am

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The Indian markets remained extremely choppy witnessing alternate bouts of buying and selling activity during the previous two hours of trade. Nevertheless the Sensex managed to break into the positive on account of buying activity in the sectors like realty, banking, metal, telcom and healthcare. However, stocks from consumer durables, auto, FMCG and capital goods sectors are failing to garner investors' interest.

The BSE-Sensex and the NSE-Nifty are currently trading higher by around 35 points and 10 points respectively. Stocks from the midcap and small cap spaces are trading in the red, with the BSE-Midcap and the BSE-Smallcap indices trading marginally lower by 0.1% and 0.3% respectively. The rupee is trading at 46.10 to the US dollar.

Godrej Consumer Products' household insecticide division, Godrej Sara Lee is planning to remodel its distribution system in order to strengthen its relationship with the retailers. It might be noted that this company is a joint venture (49:51) between Godrej Group and Sara Lee Corp of the US. The revamping of distribution is being done as an attempt to appropriately place its products across modern and traditional retail formats. The company will follow a segmented channel format wherein it will breakdown its retail points into different categories like cosmetic stores, specialty outlets, shoe marts and rural space channel. It is also planning to revamp its IT infrastructure so as to gain access to real-time data on inventory and sales.

It may be noted that the company has become a market leader in the Indian insecticide market, with a lion's share of 33%, aided by its renowned brands like Hit and Good Knight. It is worth noting that Godrej group is attempting to buy the remaining 51% stake in the joint venture. However, Sara Lee is talking to a number of players to sell this business. Godrej Sara Lee contributed 23.3% of the top line and 23% of the bottom line for Godrej Consumer Products during 3QFY10. We believe that an increase in distribution network will help the company is gaining from the recovery in FMCG spending which is expected to kick in once the Rabi crops come. Along with its peers from the FMCG sector, Godrej Consumer Products is trading in the negative currently.

L&T Infotech, the IT business of engineering major L&T is planning to enter the BPO business as an attempt to make its IT portfolio more broad-based. This move is expected to enable the company provide customers with a full gamut of IT services from basic application development and testing to back-office business processing. It is formulating strategy about the focus segment for BPO as well as appropriate delivery locations. It might also take the inorganic path to enter into the segment. It may be noted that in the past, IT majors like Wipro and IBM ventured into the BPO business through their acquisition of Spectramind and Daksh BPO services respectively. However, we believe that as the BPO industry has now entered into a mature phase, such acquisition driven strategy might not be as successful as it was in the past. Nevertheless, adding BPO capability to its offerings will help L&T Infotech in gaining more business from existing customers. The stock of L&T is trading in the red currently.