Energy, metal shed markets' gains

Fri, 18 Jun 01:30 pm

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The Indian markets shed their first half gains during the previous two hours of trade and are presently hovering around the dotted line. The overall market sentiment is slightly pessimistic as the decline to advance ratio is poised at 1.3 to 1 on the overall BSE. Currently stocks from the capital goods, auto and IT spaces are the top performers, while those from the oil & gas, metals and realty spaces are the top losers.

The BSE-Sensex and NSE-Nifty are both trading flat at the moment. Stocks from the midcap and smallcap spaces are trading mixed with the BSE-Midcap index down by about 0.1%, while BSE-Smallcap index is trading marginally higher. The Rupee is trading at 46.17 to the US dollar.

Oil & Gas stocks are trading weak with the major losers being RNRL and BPCL. As per a leading business daily, Indian Oil Corporation (IOC) plans to issue 10% of fresh equity in an effort to raise funds. The issue is supposed to be priced at Rs 400 per share and will enable the company to raise Rs 80 bn. The funds raised will be used for expansion plans. Even the government plans to offload around 5% stake in the company. It should be noted that government currently owns about 80% in IOC. The plans to offload stake by the government is in conjunction with the 25% public shareholding norm proposed by the finance ministry. The management has not decided the time line for this follow on offer. However, considering the current price is not conducive for the follow on offer we do not see the offer concluding in the near term.

Textile stocks are currently trading firm weak by Alok Industries, Arvind Limited and Bombay Dyeing. A leading business daily has reported that textile major Arvind Limited is looking at spending Rs 2 bn as capital expenditure for the current fiscal FY11. These funds would be mainly used for expanding its denim and shirting fabrics facilities. As per the company’s management, the company would be adding about 10% in capacity in both the businesses, with shirting fabrics being slightly higher. These expansion plans would be on the back of the company expecting a strong take off in volumes, especially after seeing the volume growth during the last fiscal. For its denim business, volumes increased by 31% YoY during FY10. For the shirting business, volumes were higher by 44% YoY. In fact, it is reported that the company resorted to purchasing semi-finished products during FY10, to meet the surge in orders. However, the same led to a rise in cost of raw materials (as a percentage of sales).

However, during FY10, Arvind failed to retain improved realisations for both these businesses. While realisation of the denim business remained flat during the year, those of the shirting business declined by about 6% YoY. This was mainly due to the slowdown in the garmenting business itself (The shirting division which is a supplier to the company’s garmenting arm).