Banking, auto take Sensex higher

Mon, 29 Mar 01:30 pm

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Continued buying activity led the Indian markets to rise higher into the positive during the previous two hours of trade. Barring IT, stocks across the sectors have managed to record gains today. Those leading the pack include stocks from the consumer durables, banking and auto spaces. Healthcare and power stocks are amongst the lowest gainers at present.

BSE-Sensex is trading higher by 130 points (or 0.8%), while NSE-Nifty is trading higher by 40 points (or 0.8%). The BSE-Midcap and BSE-Smallcap indices are trading higher, up by about 0.4% each. The rupee is trading at 45.02 to the US dollar.

Engineering stocks are currently trading mixed with Blue Star', Praj Industries and BHEL leading the pack of gainers, while Punj Lloyd, TRFand Crompton Greaves are amongst the key losers. The stock of Punj Lloyd is in the news today on the back of it deciding to sell its stake in Pipavav Shipyard. The company's management has mentioned that this is a strategic decision for both the companies. For Punj Lloyd - it will allow the company to exit its non-core business. And for Pipavav Shipyard, it will allow the company to have a single promoter to focus on the future of the company. What is ironic is that Punj Lloyd's management believes that Pipavav Shipyard is at a very critical juncture and is poised for a very explosive growth. So what's the reason to exit the investment at this time? We fail to understand. The managements of both the companies have denied any disputes or disagreement as a reason for the same.

The company purchased 19.43% stake in Pipavav Shipyard during 2007 at a cost of Rs 3.5 bn or Rs 27 per share. However, it has sold this stake at about Rs 6.6 bn or about Rs 50.75 per share. While the company has been able to make a good profit on this investment, the stock is still trading lower. Investors seem to be disappointed with the fact that Punj Lloyd has sold its stake at a price which is way lower than the IPO price of about Rs 58 per share.

Auto stocks are currently trading firm led by Mahindra & Mahindra (M&M), Maruti Suzuki and Bajaj Auto. A leading business daily has reported that auto major M&M is likely to freeze its investments in its joint venture (JV) with Renault. M&M holds a 51% stake in the JV. The business daily has reported that the future investments will be carried out only by Renault. This move is likely to give less control to M&M in the JV as it could end up giving up its majority stake and management control in the venture to its French partner, Renault over time. It must be noted that no official statement has been made by the companies. However, they are expected to make a statement during the first week of April.

In addition, the two companies are in discussion to let Renault use part of the 50,000 unit facility in Nashik to make other vehicles. This is considering that much of the capacity is sitting idle as the Logan sales have been constantly declining. During the period April to February 2010, sales of the JV's vehicle, the Logan, have decline by nearly 60% YoY to a little less than 5,000 units.