Banking, auto drive up markets

Fri, 6 May 11:30 am

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Indian stock markets continue to hold on to their opening gains on buying interest in heavy weights over the last two hours of trade. Stocks from the banking and auto space are trading firm while stocks from the metals and FMCG space are trading weak.

The BSE-Sensex is up by 210 points while NSE-Nifty is trading 58 points above the dotted line. BSE Midcap index is up by 0.5% while BSE Small cap index is trading 0.7% above yesterday's closing. The rupee is trading at 44.79 to the US dollar.

Auto stocks are witnessing buying interest led by M&M and Tata Motors. As per a leading financial daily, RBI's recent rate hike is expected to hurt the demand for cars. It may be noted that the automobile industry is already facing problems of costlier fuel and expensive financing. This is the ninth successive interest rate hike and interest rates are now at their 6-7 year highs. This results in higher EMIs (Equated Monthly Installments) for car loans. The signs for slowdown in demand are already visible. It is said that enquiries at dealerships have been reduced and the conversion rate has also come down. Experts feel that any further increase will only worsen the demand situation. As per Maruti Suzuki, the market is already under pressure and the rate hike will have an adverse impact. Car sales grew by 30% plus in 2011, but the outlook for the next year is pegged at only half of this.

Food and tobacco stocks are trading mixed with GSK Consumer and VST Industries trading firm while Wadala Commodities and Nestle are trading weak. As per a leading financial daily, Nestle has moved its chocolates and Maggie SKUs to a higher price point. The company has done this to protect its margins which have been under pressure due to sharp increase in input costs. It may be recalled that Nestle had carried out a similar exercise last year when it had moved away from the price points of Rs 2, Rs 5 and Rs 10 to points of Rs 7, Rs 12 and Rs 14 in KitKat. However, a dip in volumes forced the company to roll back its price hikes.

KitKat which was earlier being sold at Rs 5 and Rs 10 is now being sold at price points of Rs 7 and Rs 14 respectively. Some variants of Maggie have already moved up from Rs 10 to Rs 12 with the remaining noodles portfolio set to follow suit. However, unlike last time, Nestle is introducing new formats in KitKat at Rs 5 and Rs 10 price points. It may be noted that in chocolates, Nestle's biggest competitor is Cadbury which has not increased its prices. In noodles, several new players have entered the market, each with a different product proposition. However, it will take at least 2-3 years for these new players to establish themselves and challenge Maggie.