Realty, FMCG stocks lead the losers

Tue, 23 Mar 01:30 pm

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Profit booking took its toll on the Indian markets as they shed their morning gains and slipped into the negative territory during the previous two hours of trade. Investors were seen booking profits in stock from the realty, auto and FMCG space. However, stocks from the healthcare, oil & gas and metal have managed to garner some buying interest.

BSE-Sensex is trading lower by 50 points while NSE-Nifty is trading lower by 5 points. BSE-Midcap Index is trading marginally higher, while the BSE-Smallcap index is trading higher by about 0.3%. The rupee is trading at 45.59 to the US dollar.

Cement stocks are currently trading mixed with India Cements, Prism Cement and Shree Cement trading firm, while ACC, UltraTech and Ambuja Cement are trading weak. With a strong build up in cement capacities expected over the next coming years, cement manufacturers are likely to face an issue of over capacity. This would lead to a decline in realisation as the capacity build up is happening at a faster pace as compared to the actual growth in demand. During the month of February 2010, the capacity utilisation stood at 83% as against 92% recorded in the same period last year. However, a leading business daily has reported that cement manufacturers are planning to target rural markets for their next growth driver. This would also help them control realisations to an extent. Cement majors such as UltraTech, HeidelbergCement, ACC, Ambuja along with the relatively smaller players such as Shree Cement are all planning on taking up this strategy. These companies are implementing various strategies including expanding their retail and distribution network, amongst others.

The government has earmarked Rs 480 bn for rural infrastructure programmes under the Bharat Nirman. This development could clearly be the reason for the cement manufacturers to focus on rural markets. Rural markets do not really contribute a significant amount to the revenues of cement manufacturers. For example, Shree Cement earns only one-fifth of its revenues from rural markets. However, the company plans to raise this to about 40% over time.

Steel stocks are currently trading firm led by Jindal Steel, JSW Steel, SAIL and Tata Steel. Gains in this pack are on the back of reports of a fresh round of hike in steel prices. This is likely to be the case for both - long and flat products. A leading business daily has reported that these price hikes are on the back of a rise in international steel prices (by about US$ 100 per tonne) coupled with the overall pick up in demand. These price hikes are likely to take place from April 1 2010.

The cost of the key raw materials, iron ore and coking coal have also moved up by over 20% in the recent past. Further, they are expected to move up even more. Steel prices were hiked by about Rs 2,000 to Rs 2,500 per tonne during the month of February this year. There was slight increase in the price earlier this month on the back of a roll back in excise duty during the Budget.