Mid and small caps buck the trend

Thu, 4 Mar Closing

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The benchmark Indian indices which showed signs of wearing off since the start of the session today failed to make a recovery till the final hour. Besides profit booking across heavyweights, the acceleration in food inflation acted as a major dampener. The food price index rose 17.9% in the 12 months to February 20 (17.6% last week) and the fuel price index was up 9.6%. Defying the government’s predictions that price rises would start to moderate, the higher inflation number adds to the pressure on RBI to raise interest rates further in April. The government's decision to raise petrol prices by about 6% and diesel by 7.8% in last week's budget to help curtail the fiscal deficit may prevent food prices from easing in the near term. Stocks from commodity, auto, and software sectors led today’s losers.

The BSE Sensex and NSE Nifty closed with losses of around 28 points (0.2%) and 8 points (0.2%) respectively. Mid and small cap stocks however bucked the trend. The BSE Midcap and BSE Smallcap indices closed higher by 0.8% each. Among key Asian markets, while China and Hong Kong closed marginally in the red, India and Korea were among the lead gainers. European markets have opened lower today. The rupee is trading at 45.81 to the dollar.

Close on the heels of the government announcing new bank licences to private sector players and NBFCs, ANZ (Australia and New Zealand Banking Group) has received in-principle approval to set up a bank branch in India. ANZ, Australia's fourth-largest lender plans to have banking presence in Mumbai in the next 12 months. ANZ’s entry into India comes ten year after it sold its assets in the country to Standard Chartered. State-run banks control nearly three-fourths of India’s banking sector and only a handful of foreign banks, such as Citigroup, Standard Chartered and HSBC have a major share of corporate lending. Almost a decade later, ANZ is reviving its Asian focus and aims to get a fifth of its profit from this region. Last year it bought some Asian assets of Royal Bank of Scotland and is now focusing on China, India and south east Asia. Stocks in the banking sector including HDFC Bank, Yes Bank and ING Vysya Bank closed higher today.

Realty stocks managed to regain investor favour today with stocks like Unitech and DLF featuring amongst the lead gainers. After several months of muted performance, the housing construction sector was finally witness to a recovery in the past two quarters as sharp price cuts and teaser home loan rates lured buyers. However, the recent Budget proposal to levy 10.3% service tax on houses under construction threatens to crimp the sector’s fragile recovery. The resultant price hike of around 3% is expected to dissuade fresh buyers. The proposal is purported to spur builders into completing projects faster after rampant complaints of long delays. We believe that although the service tax may constrain demand in the short term, it will eventually be in the interest of both home buyers as well as shareholders of realty companies.

Watch and jewellery retailing major Titan Industries has cited plans to spend about Rs 1 bn on incremental capex in FY11. Part of the capex will be used for the firm's retail expansion plans as it plans to add more stores in the next fiscal. In 9mFY10, the growth in Titan’s revenues was driven by its mature business segments - jewellery and time products. However, in future the company to grow on the back of better penetration and new product launches. The sector provides immense potential on account of low penetration levels and on account of rising aspiration levels of Indian consumers. The company’s new initiatives, (prescription eyewear and precision engineering) taken with a view to sweat assets and sustain profitability are expected to improve shareholder returns in the future.