Smallcaps outperform larger peers

Mon, 22 Mar 11:30 am

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Though the markets made good part of their opening losses, they remained in the red during the previous two hours of the trade. Currently, stocks from the realty, consumer durables, metals and auto sectors are dragging the indices lower, while stocks from the healthcare, oil & gas, FMCG and telecom sectors are trading higher.

The BSE-Sensex and the NSE-Nifty are trading lower, shedding around 34 points and 16 points respectively. While the BSE-Midcap are trading in red, with BSE-midcap index down by 0.2%, BSE-Smallcap are trading in the green, up by 0.12%. The rupee is trading at 45.49 to the dollar.

According to a leading business daily, the Indian textile industry has big plans for the Latin American markets. The markets in Argentina and Brazil which are scouting investments in the Indian textile industry are organizing a Mega Textile & Clothing Exhibition around the end of this month. Around 22 of Indian Textile companies will be showcasing their products there. Given the huge size of the Latin American markets, we believe that this is a big step forward for domestic textile companies as they will be able to showcase and market their products to the fashion conscious buyers.

It may be noted that recession hit Indian textile industry is betting big on Latin American markets which provide huge potential of export expansion. Brazil and Argentina imported textile and clothing worth Rs 172.4 bn and Rs 72.9 bn respectively in FY09 out of which India's export share stood at dismal 12% and 6% respectively. Also Brazil and Argentina are major importers of man-made fiber (MMF). Their imports stand tall at about 30% and 42% in value of the overall global markets. The major exporters are China, Indonesian Pakistan and Republic of Korea.

Bharti Airtel is the top gainer on BSE currently. According to a leading business daily, the company has tied up the entire amount of US$ 8.3 bn (or Rs 377.6 bn) required to finance its proposed acquisition of Zain's African assets. As per the arrangement, the company will get US$ 7.5 bn in loans from a group of banks led by Standard Chartered Plc and Barclays Plz. Also SBI will give Bharti rupee loan worth US$ 1 bn which will cover the associated transaction cost.

It may be noted that Bharti is in exclusive talks with Zain till 25th March 2010 over the offer for acquisition. As of now it has indicated that, Bharti will pay US$ 9 bn for acquiring Zain's assets in 15 African countries and will take over US$ 1.7 bn of debt on Zain's book. Bharti already has a debt of Rs 19 bn on its balance sheet with a debt to equity ratio of around 0.26 times. Nevertheless, it is the only telecom player in India which has positive free cash flows. We believe that given its strong balance sheet, the company will be able to absorb the increase in debt. We believe this acquisition will aid to the future growth of the telecom service provider.