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Capital goods stocks lose favour
Mon, 12 Apr 01:30 pm

After some signs of recovery, the benchmark indices reversed the trend and once again slipped below the dotted line during the previous two hours. While buying interest is seen in the FMCG and realty space, the stocks in the capital goods, PSU and banking sectors do not seem to be finding takers.

BSE-Sensex and NSE-Nifty are trading marginally lower while, BSE-Midcap Index is up by 0.2% and the BSE-Smallcap index is trading 0.7% above yesterday’s closing. The rupee is trading at 44.38 to the US dollar

Stocks in the power sector are currently trading weak with Tata Power being the biggest loser. According to leading news daily, Tata Power plans to produce 25,000 MW of power by 2017 up from 2,400 MW today. While several power companies are going for expansion, it may be still too early to think about competition as India is facing an acute power shortage. Nevertheless, Tata Power has made sure that its long term strategy is clear. The company intends to take advantage of the government’s incentive for solar power and has plans to take up the total power generated from clean sources from 20% today to 33% in the future.

Furthermore, the company is upgrading its transmission lines and is working on the long term charter of several ships to ferry its coal for the power plants. With Tata Power on an aggressive growth trajectory, we believe that there are several long term positives for the company.

Another sector whose stocks are trading weak is auto. The sector is being weighed down by Tata Motors, Maruti Suzuki and M&M. As per a financial daily, the automobile industry in India is set to slow down, with growth rates in 2010-11 in low double digits as a result of a high base effect in 2009-10. As per the Society of Indian Automobile Manufacturers (Siam), the auto industry is expected to see a growth rate between 10%-14% next year as compared to 26% in 2009-10. While the demand is expected to come from tier 1 and tier 2 towns, supported by several launches in the compact car category, the main concerns are the rising commodity prices and the expected increase in interest rates. Both these factors are expected to raise the cost of owning an automobile in the range of 4% to 6% this year.

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