Mid, smallcaps are in demand

Tue, 6 Apr 01:30 pm

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The Indian markets continued to hover around the dotted line during the previous two hours of trade. However, market sentiments seem to remain optimistic as the overall advance to decline ratio is poised at 1.5 to 1 on the BSE. Stocks from the real estate space are leading the pack of gainers. They are followed by power and capital goods stocks. IT and auto stocks are seeing the most pressure at present, while FMCG and metal stocks are amongst the lowest gainers.

While the BSE-Sensex is trading marginally higher by 10 points, the NSE-Nifty is trading lower by about 5 points. However, stocks from the midcap and smallcap space continue to see interest as the BSE-Midcap and BSE-Smallcap indices are trading higher by about 0.7% each. The rupee is trading at 44.36 to the US dollar.

Steel stocks are trading mixed with Tata Steel trading firm and JSW Steel and SAIL trading in the red. A leading business daily has reported that steel consumption grew by nearly 8% YoY during FY10. This is slightly higher than the forecasted GDP growth rate for the year. As per the steel ministry, demand was largely led by the fast growing automobile, infrastructure and real estate sector. It may be noted that during the previous financial year i.e. FY09, steel consumption had shrunk by about 0.5% YoY. Consumption for the year stood at about 56.3 MT against 52.3 MT last year. At the same time production expanded at a slower pace of 4.2% YoY and currently stands at 60 MT. While exports declined by nearly one-third as compared to last year, steel imports grew by 23% YoY.

It may be noted that the growth in steel production is likely to remain strong going forward. This is on the back of new capacities being built up to meet the growing demand. However at the same time, prices of key raw materials have also moved up in recent times. This had led the steel industry to hike price across products this year. In fact, the industry has raised steel prices three times in the year till date. While these price hikes are not likely to make a substantial impact on demand, the extent of the same, however, remains to be seen considering that the effect of the hikes will take place in the coming future.

Engineering stocks are currently trading firm led by BHEL, Suzlon, Cummins India and Punj Lloyd. The stock of wind energy major Suzlon Energy is amongst the top gaining engineering stocks at present. This is on the back of the company winning a repeat order from Gujarat State Fertilisers & Chemicals. The scope of this order includes setting up, operating and maintaining an 18 MW (megawatt) wind energy project at Adodar site in the Porbandar district of Gujarat. The project will comprise of 12 units of Suzlon's S82 - 1.5 MW wind turbines.

It must be noted that this order is not really a big ticket order for the company. But the fact that this is the third repeat order from its client is possibly the reason for the stock to move higher. It may be noted that in the past, a few of Suzlon's clients have questioned the quality of Suzlon's products such as wind turbines. For the same the company had to bear heavy losses. However, receiving a third order from a single client does imply that some of the company's clients are content with its products and offerings.