Banks, auto drive indices higher

Fri, 13 May 11:30 am

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After a muted start, the Indian stock market indices gathered momentum backed by buying interest in heavyweights over the last two hours of trade. All the sectoral indices are trading in the green led by auto, FMCG and banking.

The BSE-Sensex is up by 208 points while NSE-Nifty is trading 65 points above the dotted line. However, BSE Midcap and BSE Small cap indices are up by 0.8% and 0.6% respectively. The rupee is trading at 44.85 to the US dollar.

Auto stocks are trading strong led by Escorts and Hero Honda. As per a leading financial daily, Hero Honda Motors will spend Rs 1.75 bn on an image makeover after its break up with Japan's Honda Motors. Post the break-up the Honda name will be dropped from the motorcycles business. This branding exercise will help the auto company connect better with the youngsters and the middle class.

As per the management, there is a need to reassure the people that post-split Hero is efficient enough to maintain the quality and the durability of its products. The amount spent on makeover will be in addition to the funds spent on advertising and marketing campaigns done every year. At least Rs 0.6 bn will be for the creation of new commercials and payment to brand ambassadors while the rest will be used for positioning in India and abroad. It may be noted that the list of brand ambassadors of Hero group is long with names like Virendar Sehwag, Yuvraj Singh, Harbhajan Singh, Zaheer Khan and Hrithik Roshan. The Hero brand is amongst the top 10 brands in India and repositioning it will be a huge exercise.

Energy stocks are trading mixed with Gujarat State Petronet and Castrol trading firm while BPCL and IOC are trading weak. As per a leading financial daily, the central government has agreed to give Rs 200 bn to state run oil marketing companies (OMCs) including Bharat Petroleum (BP), Hindustan Petroleum (HPCL) and Indian Oil (IOC). This compensation is in lieu of loss of sale suffered by these companies in selling diesel, domestic LPG and kerosene below market rates. However, this is lower than what the companies were seeking from the government. Originally the OMCs had asked for Rs 300 bn as compensation. This is because OMCs had suffered a loss of Rs 780 bn from under recoveries. While a third of this was to be borne by the OMCs, the government was supposed to compensate the companies for the remaining amount. Other the remaining around Rs 200 bn has already been paid. Hence the demand was for Rs 300 bn.

It may be noted that state run OMCs has a projected revenue loss of Rs 1,800 bn in 2011-12 on the sale of diesel, domestic LPG and kerosene at subsidized rates. The losses currently stand at Rs 18.19 per liter of diesel, Rs 29.69 per liter of kerosene and Rs 329.73 per cylinder of LPG. Moreover, as the OMCs have not been able to raise prices of petrol, they are losing Rs 7 - 8.5 per liter of petrol.