Red marks across sectors

Mon, 7 Mar 11:30 am

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Indian stock markets are trading weak on the back of selloff in heavy weights over the last two hours of trade. Stocks from the capital goods and realty space have lost the most, while stocks from the IT and PSU space have lost the least.

The BSE-Sensex is down by 326 points while NSE-Nifty is trading 100 points below the dotted line. BSE Midcap and BSE Small cap indices are trading 1.6% below Friday's closing. The rupee is trading at 45.12 to the US dollar.

Hotel stocks are trading weak led by Oriental Hotels and Country Club. As per a leading financial daily, luxury hoteliers fear lack of significant upside in room rates in existing properties over the next few years. The reason behind this is that 80,000 more rooms are expected to be delivered over the next 2-3 years in various cities and tourist hotspots. As a result, hotel rates will remain subdued and may not experience the five-year runaway increase the industry witnessed till 2007. Industry experts believe that there may in fact be downward pressure on room rates due to competition from leading international and availability of quality options in the mid market and budgetary category. According to a report by HVS, a hospitality services provider, going forward, hotel rates across categories are expected to be more aligned with global bench marks.

It may be noted that the hotel industry has been under supplied for several decades and it is only now that we are seeing fresh supply coming in. According to some reports, the overall demand in hotel rooms in the country is 500,000 while the current inventory is just a fifth of that at around 110,000. However, 2011-12 is expected to be a year of consolidation for the industry wherein hotel companies are expected to focus on stabilizing occupancies and then gradually increasing rates.

Steel stocks are trading weak due to selling pressure in heavyweights like SAIL, Tata Steel and JSW Steel. As per a leading financial newspaper, Steel Authority of India Limited is aiming at garnering one fourth of its revenues from sources other than steel by the year 2020. This has been detailed in SAIL's Vision 2020 document which was discussed at a recent board meeting. SAIL's strategy includes new initiatives in sectors such as mining, power generation and rail transport through joint venture agreements. According to a spokesperson, this diversification will help in minimizing the risk of volatile steel prices. The company is planning to set up a separate company for mining projects by the name of SAIL Natural Resources. It is considering the possibility of mining titanium and manganese through joint ventures in Kerala and Rajasthan respectively. For power generation, it is in talks with NTPC Ltd and Damodar Valley Corp. The company seeks nomination for the construction of the eastern part of the Indian railways along with manufacture of railway coaches as a part of its railway plans.

SAIL's FPO is slated in April this year and experts feel that the company will be able to focus on its diversification plans only after utilizing all the funds meant for capital expenditure in existing projects. It may be noted that, SAIL has a stated objective of investing Rs 600 bn in brownfield projects to raise its capacity to 24 m tonnes. As of now, the company has been able to deploy only half of the amount stated.