Small, midcaps out of favour

Tue, 25 May 01:30 pm

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Overall negative sentiments led the Indian markets to languish in the red during the previous two hours of trade. The overall decline to advance ratio is currently poised at 4.7 to 1 on the BSE. Stocks across sectors are under pressure at the moment, with the top losers being stocks forming part of the metals, capital goods and auto spaces. Healthcare and oil and gas are amongst the best performing stocks at the moment.

The BSE-Sensex is trading down by 330 points (2%), while NSE-Nifty is trading down by 105 points (2.1%). The BSE-Midcap index is trading lower by 2.2% while the BSE-Smallcap index is trading down by 2.3%. The rupee is trading at 47.49 to the US dollar.

Power stocks are currently trading weak led by Tata Power, NTPC and Reliance Power. Tata Power announced its results recently. The company reported a standalone revenue decline of 2% YoY for the full year FY10. This was despite a 6% YoY growth in volume sales of electricity. The reduction in the revenues was mainly due to lower power tariffs, which were a result of lower fuel costs (as the company has to pass on lower costs to customers in terms of lower tariffs). However, on the back of an 11% YoY reduction in expenses, its operating profits for the full year improved by 66% YoY. Operating margins during the year stood at 26.2% as compared to 15.5% last year. The key reason behind the same was lower fuel costs. The company's net profits, however, increased by a marginal 2% YoY. Lower other income coupled with higher tax outgo led to a muted performance at the bottomline level. On a consolidated level, revenues and profits are higher by 5% YoY and 61% YoY. The surge in the consolidated bottom line was mainly due to lower tax outgo during the year.

Software stocks are currently trading weak led by HCL Technologies, Tech Mahindra, Wipro and TCS. A leading business daily has reported that the Karnataka Government has cleared a proposal for tech-major Infosys to invest about Rs 30 bn to set up two software development centers in Bangalore. The company has already acquired 365 acres of private land at Sarjapur on the outskirts of Bangalore, and has approached the state government for another 40 acres near the Bangalore International Airport. The proposed campus at Sarjapur will become Infosys' second largest campus, in terms of area after the one at Mysore. Infosys plans to invest Rs 23 bn in the Sarjapur development centre to seat around 18,000 employees, and about Rs 7 bn in the other centre to create capacity for 12,000 employees. These developments indirectly indicate an overall revival in the IT market and thus increased revenue visibility for the tech biggies.