Indian stock markets welcome the budget

Fri, 26 Feb 11:30 am

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Union Budget so far appears to cheer the markets as they remain firm on account of persistent buying in index heavy weights. Stocks from the oil and gas, metal, auto and realty are leading the pack of gainers, while stocks from the telecom and IT sectors are the only ones failing to garner investors’ interest.

The BSE Sensex and NSE Nifty are trading higher, up by 90 points and 33 points respectively. The BSE Midcap and Smallcap indices are trading in the positive, up by 0.96% and 0.63% respectively. The rupee is trading at 46.29 to the dollar.

According to a leading business daily, public sector aluminium major Nalco, is planning to undertake expansion plans worth Rs 500 bn over the next 8 to 9 years. The company plans to increase its aluminium capacity from existing 4.6 lakh MT to 5.75 lakh MT, its alumina refinery from 21-lakh MT to 29-lakh MT along with de-bottlenecking of alumina from 21-lakh MT to 22.7-lakh MT. It plans to spend around Rs 15 bn towards capex in FY11. IT will set up a Rs 160 bn greenfield project in Orissa and a Rs 56 bn refinery in Andhra Pradesh. It is also setting up a smelter in Indonesia.

It has no plans for fund raising for next two years as it believes itself to be adequately resourced for expansion. Also it has no plans for follow on public offer in the short term either. It is worth noting that aluminium prices went southwards during last year, denting the company’s topline. Nevertheless, Nalco, being one of the lowest cost metal producers in the world could survive it without cutting its production. Its topline declined by 25.6% YoY during 2QFY10 mainly on account of lower realisations due to weak London Metal Exchange prices. However lately the prices are stabilizing and are expected to remain stable in FY11. We believe that these expansion plans are well timed in light of the growing international and domestic demand for aluminium.

As per a leading business daily, Mindtree, is planning to revamp its presence in Asia Pacific, Middle East and India. It recently indicated of an increased focus on the UAE’s IT market which is estimated to be growing at 7% annually to reach US$ 1 bn by 2011. In its target markets, it plans to ramp up its sales force, reinforce strategic partnerships with local companies and focus on specific segments like government and the manufacturing industry. It has also hinted of plans to raise debt upto US$ 100 mn soon, which we believe will go towards these initiatives and inorganic foray. It may be noted that the company generates around 17% of its revenue outside the US and European markets. In 3QFY10, Mindtree’s revenue from India and other markets like Middle East, Asia Pacific and Africa (MEA) grew by 27% QoQ and 52% QoQ. We believe that these focused efforts towards strengthening its foothold outside the core markets will help the company in de-risking its growth from the mature IT markets in the West.