Healthcare, auto help pare losses

Wed, 23 Jun 01:30 pm

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Buying activity led the Indian indices to pare their losses and move towards the dotted line during the previous two hours of trade. At present, the markets are trading marginally in the red. Stocks from the healthcare, auto and realty spaces are currently leading the pack of gainers, while those from the capital goods and metal spaces are trading weak.

The BSE-Sensex is trading down by around 20 points (down 0.1%), while the NSE-Nifty is trading flat. Mid and small cap stocks continue to be preferred by investors as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.6% each. The rupee is trading at 46.85 to the US dollar.

Telecom stocks are currently trading firm led by Reliance Communications (RCom), Bharti Airtel and Idea Cellular. The stock of RCom is amongst the top gainers from the BSE-Sensex at the moment. Gains in the stock are on the back of news that the company is looking to sell nearly 26% stake to French telecom and media major Vivendi. This move is aimed at bringing down the debt levels of the company. Another company that is believed to be in talks with the Indian telecom operator is the UAE based telecom service operator Etisalat. However, since it has an interest in another Indian telecom company, the general consensus is that the Vivendi stake purchase would be less complicated. However, whatever may be the outcome, the acquirer will have to give an open offer to purchase 20% additional stake in RCom, according to SEBI guidelines.

It must be noted that quite a few rumors have been circulating over who will be partnering or buying stake in RCom. Not so long ago, news of a South African major being interested in acquiring RCom was making the rounds. However, all said and done, the outcome of this development will only help RCom make its balance sheet stronger. However, issue remains with respect to equity and earnings dilution for its investors.

Auto stocks are trading mixed with Maruti Suzuki and Hero Honda trading firm while Escorts and Eicher Motors are trading weak. As per a leading financial daily, Tata Motors is planning to assemble a few Land Rover models in India. It is believed, to start off, the company will start the assembly of Land Rover’s Freelander by the end of 2010. The locally assembled models will be launched by first half of 2011 and trial production is expected to start by December this year. Tata Motors has drawn up an investment of Rs 1.5 bn to set up the assembly operations for Freelander. However, it is not known whether Tata Motors will be using India as an export hub or it plans to cater to only the domestic demand.

It may be noted that Tata Motors sold 242 units of Freelander in 2009-10 through a single outlet in India. While the Freelander is priced at Rs 3.5 m (on road in Mumbai), local assembly will give Tata Motors cost benefits as the import duty on completely built models is around 110% while that on completely knocked down units is 40%. However, the pricing of the model is not expected to change and it is positioned to compete against BMW India Pvt. Ltd's X3 and Audi India Pvt. Ltd’s Q5, among others. Tata Motor's factory located at Pimpri will be used for manufacturing this vehicle. To start off, it will roll out 240 units per annum.