Telecom, FMCG stocks lead gains

Fri, 14 May 11:30 am

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Selective buying activity led the Indian markets to rise above the dotted line and move into the positive territory during the previous two hours of trade. However, the indices did shed part of these gains and are currently trading at the neutral zone. As for the sector-wise movement, stocks from the telecom, FMCG and healthcare spaces are amongst the top gainers, while those from the metal, energy and realty spaces are amongst the top losers.

The BSE-Sensex is trading marginally higher by 10 points, while the NSE-Nifty is trading flat. The BSE-Midcap and BSE-Smallcap indices are both trading flat as well. The rupee is trading at 45.07 to the US dollar.

Engineering stocks are currently trading mixed with Thermax, ABB and Siemens trading firm, while Punj Lloyd, Alfa Laval and Areva T&D are trading weak. The stock of wind energy major Suzlon Energy has been under pressure over the past few days. This is most likely due to the crisis that has occurred in Europe, a key market for Suzlon. In a recent interview with a news channel, the company's management did say that orders from Europe are getting deferred due to the slowdown. This is because it gets difficult for its clients to raise funds for renewable-energy projects. This would only lead to more problems for Suzlon as its order execution period would be extended. As such, the management expects 2010 to be a moderate year for Suzlon.

It must be noted that for Suzlon as a standalone company, about 11% of its order backlog were from the European orders as of January 2010 out of total order back log of 1,484 MW (megawatts). As for its European based subsidiary, REpower (92% stake) and which mainly caters to that region, it had a order back log of Euro 1.7 bn as of December 2009. However, while the management expects a slowdown from this region, it expects orders from the Asian regions to remains strong. Plus, it also expects a pickup in offshore (sea-based) projects, especially in their size. However, these orders are expected to flow in over the long run.

As per a leading financial daily, Tata Power has offered to sell Reliance Infrastructure (R-Infra) 200 Mw at Rs 5.9 per unit till June. This is Rs 1.5 higher than the regulated rate. In case R-Infra rejects this offer then it would be forced to buy from the open market at Rs 6.5 – 7 per unit. Earlier, Tata Power had rejected the state government's order for the continuation of supply of 360 Mw to R-Infra up to June 2010 and 200 Mw from July to March 2011 at the regulated rate.

R-Infra is alleging that Tata Power is profiteering by not selling it power at the regulated rates as the company is interested in selling power outside Mumbai at higher rates. However, according to Tata Power, the present situation had arisen because R-Infra did not make adequate arrangements to procure power from April 1 2010, despite more than nine months notice given by the company. Furthermore, Reliance had not signed a purchase power agreement with Tata Power. Hence, the company would not be interested in diverting power from customers who have signed this agreement with the company to R-Infra. Tata Power's production capacity is 2,449 MW. Hence, we do not expect much addition to the company's bottom line even if R-Infra agrees to the company's terms of power supply. Power stocks are currently trading mixed with Tata Power and NTPC trading firm, while NHPC and CESC are trading weak.