Midcaps, smallcaps in the limelight

Mon, 30 May 11:30 am

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Over the last two hours Indian stock markets slipped into the red on the back of a selloff in index heavy weights. Stocks from the oil & gas and FMCG space are trading weak while stocks from the pharma and realty space are trading firm.

The BSE-Sensex is trading down by 47 points while NSE-Nifty is trading 7 points below the dotted line. BSE-Midcap index is up by 0.5% while BSE-Smallcap index is trading 0.6% above Friday's closing. The rupee is trading at 45.11 to the US dollar.

Food stocks are trading mixed with Godfrey Phillips and Tata Coffee trading firm, while Wadala Commodities and ITC are trading weak. Britannia Industries declared its FY11 results. For the year, the company's standalone top line increased by 23.6% YoY. This was on the back of 15% YoY volume growth while the remaining increase in top line was contributed by price increases. Operating income of the company increased by 35% YoY while operating margins increased by 0.5%. This performance was aided by slower than top line increase in staff costs, conversions charges, advertisement expenses and other expenditure. While staff costs increased by 13% YoY, conversion charges increased by 15% YoY. Advertisement expense increased by 13% YoY and other expenditure stood higher by 12% YoY. Operating income could have been higher but for a sharp increase in raw material costs. During the year, raw material costs increased by 28% YoY as a result of commodity pressure. Net profit increased by 24.7% YoY. This is because higher operating income was netted off by increase in interest costs and higher effective tax rate. While interest costs increased by 792% YoY, effective tax rate increased from 2.6% in FY10 to 26.7% in FY11. However, increase in other income and absence of exceptional loss during the year helped support the bottom line.

Power stocks are witnessing selling pressure led by Reliance Infra and NHPC. As per a leading financial daily, Coal India expects domestic output to go up by only about 25% in the next five years. As per the existing coal mines, the management expects to produce about 560 m tonne by FY17. This target will be achieved provided Coal India gets environmental clearances for most of its projects. A proper study has been carried out to arrive at the estimated numbers. However, the slow increase in production may get offset by higher revenue resulting from market linked prices. The state owned coal miner has decided to go for complete market pricing in the next seven years. Also, the company should be able to get all its coal in washed form and sell these at globally-linked prices. This would produce better quality coal which would compete with the best grades available globally and Coal India will realize better prices for its produce.