Investors content with Budget this year

Fri, 26 Feb 01:30 pm

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With the Indian markets rising sharply during the previous two hours of trade, it does seem as if the investors are content with this year's Union Budget. Buying activity is being witnessed in stocks across sectors, with gains seen in the heavyweights from various sectors. While stocks from the realty, metal and auto spaces are leading the pack of gainers, the IT pack seems to be left out as the BSE-IT Index is lower by 0.3% at present.

The BSE Sensex and NSE Nifty are trading higher, up by 310 points and 100 points respectively. The BSE Midcap and Smallcap indices are trading in the positive, up by 2% and 1.6% respectively. The rupee is trading at 46.19 to the dollar.

Power stocks are currently trading firm led by CESC, Reliance Power and NTPC. However, Tata Power has not been able to join to party on the back of investors punishing the stocks for its poor results that were announced recently. The company announced its consolidated results for the quarter ending December 2009 yesterday. It reported a 6% YoY decline in sales during the quarter, while its revenues for 9mFY10 stood higher by about 2% YoY. Lower sales in both the power and coal businesses led to the fall in revenues during the quarter. The decline in power sales is mainly attributed to the lower tariffs on the back of passing on the lower fuel costs to customers. The company's operating profits declined by 47% YoY.

Performance at the operating level was impacted by a one-time charge of Rs 350 m for the coal mining business on account of change in some contractual arrangements related to mining costs. On excluding the same, margins (12.6% in 3QFY10 as compared to 22.2% in 3QFY09) would have remained at almost similar levels to last year. On the back of sharp decline in operating margins, Tata Power's consolidated net profits dropped by 81% YoY during 3QFY10. As for 9mFY10, net profits were down by around 22% YoY. Higher depreciation cost is the key reason for the same.

Telecom stocks are currently trading firm led by Idea Cellular, Spice Communication and Reliance Communications. The stock of telecom major Bharti Airtel is also trading higher. The management of Bharti Airtel conducted a conference call yesterday, to give a better insight to the ongoing discussion over acquiring Zain's African assets. The key reason for the company wanting to enter the black continent is the fact that it has crossed its peak capex level in its Indian operations. This indirectly means that the company is now looking for its new growth phase, which in this case is by tapping the African market. In addition, the company's Chairman Mr. Sunil Mittal is of the view that the Bharti's senior management is competent enough to take its expertise, knowledge and experience and use it to transform Zain's African operations. Plus, the management also believes that it would be able to apply its low cost model and help it improve its financial heath going forward.

While Bharti is aiming at funding this acquisition with debt for now, it would be looking at lowering it in the future through the equity route. However, the latter still remains a possibility. It must be noted that the deal is still not final yet. However, the management does seem optimistic about it going through.