Small, midcaps buck the trend

Tue, 22 Jun 01:30 pm

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Although trading well below the dotted line, the Indian markets did cut a portion of their losses during the previous hour of trade. Currently stocks from the consumer durables, FMCG and realty spaces are leading the pack of gainers, while those from the metal and IT spaces are amongst the top losers. The market sentiment is neutral at the moment as the advance to decline ratio is poised at 1:1 on the overall BSE.

The BSE-Sensex is trading lower by around 65 points (down 0.4%), while the NSE-Nifty is down by about 15 points (down 0.3%). However, stocks from the midcap and smallcap seem to have bucked the trend as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.3% each. The rupee is trading at 45.97 to the US dollar.

Healthcare stocks are currently trading mixed with Ranbaxy and Dishman Pharmaceuticals trading firm while Wockhardt and Cipla are trading weak. The stock of Sun Pharmaceuticals is trading higher by 1%. Gains in the stocks are on the back of the company being granted an approval from the US food and drug administration (FDA) for an abbreviated new drug application (ANDA). This approval is towards marketing a generic version of ‘Optivar Ophthalmic Solution’ which is a product of Meopointe Pharmaceuticals. The market size for this drug is approximately US 50 m (about Rs 2.2 bn) in the US alone. This medicine is used to treat itching of the eyes associated with allergic conjunctivitis.

Steel stocks are trading lower led by Sesa Goa and Jindal Steel & Power. As per a leading financial daily, profits of steel companies this quarter are likely to be impacted by higher raw material costs and a decline in product prices as a result of slowdown in demand and large scale imports.

Prices of hot rolled coil (HRC) have dropped by about 5% to Rs 32,700 per tonne month on month in June with another 5% discount being offered to bulk buyers as a result of lower demand. In fact, large players like SAIL and Tata Steel have trimmed their production to match the fall in demand. SAIL produced 1.35 m tones during the first 2 months of this quarter while it had produced 2.7 m tonnes in 1QFY10. On the raw material front, prices of coke have been on the upswing. Most steel companies have signed contracts to import coke at a price 55% higher than last year. It should be noted that Tata Steel imports about 30% of its coking coal needs while its UK subsidiary Corus buys its entire requirement from the market. SAIL on the other hand imports 70% of its needs. Besides coking coal, iron ore prices have been on the upswing due to large imports by China. In such a scenario, the short term looks challenging for steel companies.