Smallcaps continue to attract investors

Mon, 12 Apr 11:30 am

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Although still trading in the red, the markets did recoup a portion of the opening session losses during the previous two hours of trade. With the BSE-Sensex trading lower, it seems that the large cap stocks are seeing some pressure because the overall advance to decline ratio is poised at a healthy 1.6 to 1 on the BSE. As for the sectoral performance, stocks from the capital goods, banking and healthcare spaces are seeing the most pressure at present. On the other hand, stocks from the consumer durables, FMCG and realty spaces are amongst the top gainers.

The BSE-Sensex is trading lower by about 30 points, while the NSE-Nifty is trading lower by about 10 points. However, stocks from the midcap and smallcap space are trading higher with the BSE-Midcap and BSE-Smallcap indices up by about 0.1% and 0.7% respectively. The rupee is trading at 44.3 to the US dollar.

Engineering stocks are currently trading mixed with L&T, Punj Lloyd and suzlon trading weak while LMW, Siemens and Voltas are trading firm. A leading business daily reported that power equipment major BHEL is likely to pick a minority 25% stake in a joint venture with the Karnataka State Electricity Board (KSEB). This JV will mainly be for setting up a 1,600-megawatt (MW) power project in the state. The total investment in the project is estimated at about Rs 90 bn, which will have a debt-equity ratio of 80 to 20. Going by the data, BHEL will need to invest about Rs 5 bn in the project. The engineering company will be supplying equipment for the JV, which will execute the 2x800-MW coal-fired project. As per a company official, the companies will announce the JV within a period of one month.

The interesting part of the deal is that BHEL is entering the deal with an intention of securing the equipment order estimated at about Rs 60 bn. Furthermore, the company is also looking at exiting the JV once the project is commissioned. If this were the case it would be a strong positive for the company, as it would secure new orders worth Rs 60 bn. However, at the same time one should not forget that the company already has a order backlog of a whopping Rs 1.4 trillion to execute. While this Rs 60 bn order may not really make a big impact on its order backlog, on a standalone basis, the order size is quite big.

Pharmaceutical stocks are currently trading weak led by Dr. Reddy's, Glen Pharma and Biocon. The stock of Sun Pharmaceuticals is however amongst the top gainers of stocks forming part of the BSE-100 Index currently. Gains in the stock are on the back of the company’s subsidiary receiving a tentative approval from the US FDA (Food and drug administration) to market its Abbreviated New Drug Application (ANDA), Memantine tablets. Memantine is used for treatment of Alzheimer's disease. These tablets are a generic version of Forest Laboratories, Inc.'s, Namenda 5 mg and 10 mg tablets. This is a positive development for the company considering that these two strengths (5 mg and 10 mg) of Memantine have a combined annual sale of about $1.2 bn (about Rs 54 bn) in the US.