Market weak on realty stocks

Mon, 7 Jun 01:30 pm

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Although the Indian market moved slightly higher during the previous two hours of trade, they are still trading well below Friday’s closing levels. Selling pressure is being witnessed in stocks across sectors with realty, metal and oil & gas being the top losers. Those from the FMCG and pharmaceutical spaces are the top performances currently.

The BSE-Sensex is down by around 340 points (2%), while NSE-Nifty is trading lower by about 100 points (2%). Stocks from the midcap and smallcap spaces have also taken a beating. The BSE-Midcap and BSE-Smallcap indices are trading lower by 1.4% and 1.6% respectively. The rupee is trading at 47.23 to the US dollar.

FMCG stocks are trading mixed with Ruchi Soya and Dabur trading in the green while McLeod Russel and United Spirits trading in the red. As per a leading financial daily, FMCG companies are likely to face a challenging time this year. The reason for this is with a good monsoon, the case for price increase builds on account of higher demand as food inflation decreases. However, this may result in slowdown in volume growth.

In FY10, we saw FMCG companies growing both volumes as well as margins. This was due to low cost inventory with the players which allowed them to cut prices without affecting margins. However, this year, this is unlikely to be the case. With low cost inventory exhausted, companies are likely to increase prices to protect margins. We believe that FMCG companies will focus on profitable growth and are most likely to take judicial price increases so as to grow their market shares.

As per a leading daily, Apollo Tyres plans to supply tyres to German car maker Volkswagen in an effort to expand its global reach. Volkswagen would be using these tyres for the cars it plans to launch in India and in Europe. Recently the company also launched its Apollo brand in Europe and has plans to sell 0.35 m units this year. Further, in a move to diversify, apart from Europe, the company also plans to enter other geographies like South Africa and Latin America through organic and inorganic routes. In light of the proposed expansion plans, the company expects a turnover of US$ 5 bn over the next five years. Strong demand in the replacement market, increasing rubber prices (pass through in nature) and plans to diversify globally should enable the company to achieve a stable top-line growth.