Smallcaps outdo larger peers

Tue, 16 Mar 01:30 pm

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The Indian markets gained further ground as buying activity intensified during the previous two hours of trade. The market breadth remains positive as the overall advance to decline ratio is poised to 1.4 to 1 on the BSE. Currently, buying activity is being witnessed is stocks from the oil & gas, capital goods and auto ssectors, while stocks from the FMCG, banking and realty sectors are witnessing some profit booking.

The BSE-Sensex and the NSE-Nifty are trading higher, up by 35 points and 15 points respectively. The BSE-Midcap and BSE-Smallcap are trading higher, up by around 0.6% and 1% respectively. The rupee is trading at 45.66 to the dollar.

Auto stocks are currently trading mixed with TVS Motor, Ashok Leyland and Tata Motors trading firm, while Bajaj Auto and Maruti Suzuki are trading weak. As per a leading business daily, M&M has inaugurated a Rs 50 bn auto manufacturing plant at Chakan in Maharashtra. To finance this plant, M&M plans to raise around Rs 20 bn through long-term debt. The balance will come from equity and internal accruals. The plant will manufactire not just M&M's existing vehicles, but also its forth-coming launches like its Sports Utility Vehicle (SUVs) which are due for launch in 2011.

The company expects the plant to achieve full capacity in the next four years. It enjoys a huge cost advantage due to its presence in a non-octroi zone, and will also get benefits from the Maharashtra government thus ensuring better cost efficiency. The advantage of these sops will make it cost competitive by almost 10-15% compared to manufacturing at most other locations. Not surprisingly, the company’s top management recently expressed the view that M&M is betting big on this plant for its future growth plans.

Cement stocks are currently trading weak led by ACC, Ultratech Cement, India Cements and Ambuja Cement. A leading business daily has reported that cement manufacturers are looking at increasing prices of their products by the end of this month. It may be noted that cement companies have recently increased the prices by Rs 10 per 50 Kg bag on account of proposed hike (2%) in the excise duty by the government in the Union Budget. The further increase will be on the back of the companies wanting to negate the impact of rise in the diesel price. The latest hike in cement prices is likely to come in less than a month of the previous increase.

Of the total 240 m tonnes domestic cement capacity, approximately 60% sales are dispatched though road route, while balance through rail. The rise in fuel costs has increased the companies’ transportation costs. Transportation costs form nearly 20% of total operating costs for cement manufacturers. As such, any increase in the same are mostly passed on to customers in order to maintain profitability.