Smallcaps outperform their peers

Mon, 24 May 01:30 pm

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   11:30 am   

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Selective buying activity led the Indian markets to rise marginally during the previous two hours of trade. The overall market breadth is also positive as the advance to decline ratio is poised at 3.2 to 1 on the BSE. Stocks across sectors are in demand at present, led by those form the oil & gas, power and capital goods segments. Stocks from the realty, FMCG and healthcare sectors are amongst the least gainers.

The BSE-Sensex is trading up by 230 points while NSE-Nifty is trading higher by 70 points. While the BSE-Midcap index is trading higher by 1.4%, it seems as though investors are more interested in smallcaps today as the BSE-Smallcap index is trading higher by 2%. The rupee is trading at 46.68 to the US dollar.

Stocks of auto ancillary companies are currently trading firm led by NRB Bearings, Bharat Forge and Sundaram Fasteners. Bharat Forge announced its results recently. For the full year FY10, the company's consolidated net sales declined by 30% YoY. The key reason behind this decline was the weak conditions in the European and US markets. However, on a standalone basis, the company's revenues declined 10% YoY. The reason for the same was the exposure of the company's standalone operations to the international markets. At the operating level, the company reported a 39% YoY decline in profits during the full year. On a standalone basis, operating profits were down by 7% YoY. Operating margins for the company's consolidated business dropped to 10.2% in FY10. It stood at 11.7% during the previous year. Margins contracted mainly on account of stock related adjustments and higher manufacturing expenses. On the bottom line front, the company reported a net loss during the year. Lower other income coupled with the poor operating performance led to this performance during the year.

Auto stocks are currently trading firm led by Tata Motors, Escorts and Hero Honda. A leading business daily has reported that auto major Mahindra and Mahindra is looking at increasing its exposure in the light commercials vehicle category. This it will do by launching newer versions of its newly launched sub-one-tonne mini-truck Maxximo. As per various sources, the company will be launching a passenger carrier variant as well as a goods carrier with at least a one tonne payload. These launches are likely to take place in about six months. The passenger carrier variant of the Maxximo model will fall under the category of Maruti Suzuki's Omni and Eeco. It may be noted that M&M will find it difficult to grab share from these vehicles as they control nearly 80% of the multipurpose vehicle (MPV) segment. At the same time, it may be noted that MPV vehicles have been seeing some good demand in recent times. For example, during the month of April, sales of MPVs rose by 34% YoY. M&M may be launching variants of the Maxximo brand considering the strong growth (although at a lower base) in recent times. On the whole, the demand for such sub one tonne vehicles has been strong as well. It is believed that sales of sub-one-tonne trucks have been growing at 46% annually over the past four years.