Small and midcaps buck the trend

Thu, 18 Mar 11:30 am

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The Indian markets continued to remain extremely volatile, dragging the benchmark index below the dotted line during the previous two hours of trade. The indices pared all of their early gains on account of selling activity across stocks from the auto, FMCG, capital goods and oil & gas sector. Nevertheless, stocks from realty, consumer durables, banking and healthcare sectors are managing to garner investors' interest.

The BSE-Sensex and the NSE-Nifty are currently trading lower by around 31 points and 6 points respectively. Stocks from the midcap and small cap spaces are currently trading in the green, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 0.3% each. The rupee is trading at 45.46 to the US dollar.

According to a leading business daily, India's largest IT services exporter TCS, has indicated that the business sentiment and momentum in its IT market is improving. It believes that 4QFY10 will be all the more better than the recent quarters for the company as well as the entire IT industry as a whole. The company believes that the growth in IT demand over the last few quarters is quite encouraging from a long term perspective. However, it remains to be seen if the momentum of the pre-recession days can be attained any time soon.

TCS like its peers from the sector will be giving salary hikes to its employees in April. Though the numbers have not been disclosed, increments can be expected to be in line with the industry standard. We believe that given the spurt in attrition rates that the IT companies are witnessing currently, they are bound to face wage inflation. The company will have to incur increased employee cost in order to retain its best talent and to hire more. TCS plans to hire about 30,000 more employees in FY11.

As per a leading business daily, FMCG major Godrej Consumer Products (GCP) is scouting for more acquisition targets in the emerging countries in order to broaden its geographical reach and product portfolio. It may be noted that last week the company acquired a leading African personal care brand, Tura from Nigeria's Tura Group. This acquisition is believed to pave way for company's entry into Nigeria and other West African markets. Apart from this, the company also bought out Rapidol and Kinky in South Africa in the last two years.

It may also be noted that the company is cash rich and believes that it will not face any problem in funding its inorganic expansion. By the end of FY09, GCP has around Rs 3.8 bn of cash on its books. It made investments worth Rs 75 m in the last fiscal. It has also won board's approval for raising Rs 30 bn to fund its expansion plans. The company plans to utilize as much as Rs 10 bn for its acquisition plans. The company has hinted of its plans to acquire in FMCG categories like hair care, household insecticides, toilet and soaps. Meanwhile, it will continue to expand organically in India by adding more products to its portfolio. We believe that going forward, the company will continue to benefit from higher consumption. Its international brands are expected to grow well whereas the domestic growth will largely be volume driven.