Small, midcaps in favour today

Mon, 25 Apr 11:30 am

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   09:30 am   

   01:30 pm   

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The benchmark indices in the Indian stock market remained close to the dotted line in the initial hours of trade. Stocks from the FMCG and consumer durables space are trading in the green and those from the realty and oil & gas space are trading in the red.

The BSE-Sensex is up by 19 points while NSE-Nifty is trading 2 points below previous closing. However, BSE Midcap and BSE Small cap indices are up by 0.3% and 0.4% respectively. The rupee is trading at 44.48 to the US dollar.

Auto stocks are trading mixed with Escorts and M&M leading the gains while Force Motors and Maruti Suzuki are trading weak. As per a leading financial daily, Maruti Suzuki is planning to shift the production of 0.3 m cars from Gurgaon to its new plants at Manesar once these are ready. The auto company presently manufactures all cars at three Gurgaon units spread across 300 acres of land. These include models like Swift, M800, Omni, WagonR, Ritz, Alto, Eeco and Gypsy. It also makes engines, making about 700,000 units a year of the K-Series engines and about 450,000 units per year of F, G and M-Series engines.

Maruti has an existing plant at Manesar and is investing Rs 36.3 bn on two new plants there with an aim to decongest the Gurgaon facilities. This will enable production of more engines and other parts by utilizing the idle space and workforce at Gurgaon. It may be noted that the auto maker had rolled out 0.95 m units from Gurgaon in 2010-11 out of a total installed capacity of 0.85 m units.

FMCG stocks are trading firm led by Pidilite Industries and Camlin Limited. As per a leading financial daily, FMCG majors such as Britannia, Coco Cola and PepsiCo are introducing products in the low price category. These companies are targeting the rural markets with products at the Rs 5 price point in an effort to boost volumes. For example, Britannia to drive consumption is selling premium biscuits under the Tiger and Treat brand at lower price points. According to estimates, Britannia has been able to enjoy a market share of 34.9% due to its focus on rural markets. In spite of the high commodity inflation witnessed recently, Britannia was able to maintain its market share on account of its rural distribution.

It may be noted that the bottom of the pyramid segment currently contributes only 20% of India's consumption. However, this segment is believed to be at the cusp for explosive growth. According to estimates, half of India's consumption in 2015 would come from households with an income of up to Rs 25,000 per month. Lower price points are helping to penetrate rural areas and establish brands.