Markets bounce back from day's low

Thu, 6 May 01:30 pm

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The benchmark indices continued to languish in the red during the last two hours of trade as the Greece crisis continues to keep investors edgy. However, the indices did manage to recover some of the early losses. Strong selling was, however, seen in stocks from the power, capital goods and metals space, while some buying interest was seen in stocks from healthcare and PSU sectors.

BSE-Sensex is trading lower by 106 points while NSE-Nifty is trading 40 points below the dotted line. BSE-Midcap and BSE-Smallcap indices are trading lower by 0.6% and 0.3% respectively. The rupee is trading at 45.34 to the US dollar.

Cement stocks are under pressure following the cement dispatch numbers for the month of April that were announced recently. While on a year on year basis, cement manufacturers have recorded a volume growth, the same cannot be said about the sequential figures. Recording the highest growth on a year on year basis is Jaiprakash Associates with a 57% YoY increase in dispatches. Ambuja Cement and JK Lakshmi Cement followed suit with a volumes increase of 15% YoY and 12% YoY respectively. ACC on the other hand recorded a 1% YoY decline in dispatches. In addition to the increase in infrastructure activity, a key reason for this is increase in installed cement capacities.

The figures of the month on month change in cement dispatches have another story to say. All the cement majors reported a decline in sequential dispatches i.e. in comparison to the March 2010 figures. Cement majors such as the Aditya Birla Group, Ambuja Cement and ACC reported volumes declines to the extent of 9%, 2% and 8% respectively. This drop in cement dispatches has been attributed to the delay in large infra projects. In addition, it is also believed that cement manufacturers have been facing logistics issues, especially to carry cement to the rural markets. Logistic issues in this case are the shortage of railway wagons.

Auto stocks are currently trading mixed with Tata Motors and Bajaj Auto trading weak, while Ashok Leyland and Hero Honda are trading firm. At present, the stock of Ashok Leyland is amongst the top gainers from stocks forming part of the BSE-100 Index. It must be noted that the stock has moved up by about 15% over the past two weeks. It touched its 52-week high today as well. In fact, over the last year or so, the stock has moved up by about 220%. A strong turnaround in volumes on the back of the bounce back in economy is the key factor for this performance. Investors may do well to recollect that the commercial vehicle segment was in trouble as sales slumped on the back of the slowdown. In recent times, the stock has moved up sharply as the sales numbers have remained impressive. During April, for example, sales volumes grew at a strong 270% YoY.

In a recent interview with a leading business daily, the management has cited a positive outlook for the domestic commercial vehicle segment. It expects the industry to clock a 15% to 18% growth in volumes during FY11. The company also plans to double its capacity. At present Ashok Leyland can manufacture about 100,000 units a year. This new capacity is likely to come in over the next three years. All said and done, with the stocks running up sharply, investors would do well to take under consideration the stock’s valuations. At current levels, it trades at a price to earnings ratio of about 20 times (on a trailing twelve month basis). While the prospects of the commercial vehicle segment may seem strong, one should refrain from overpaying for a stock.