Mid, smallcaps outperform larger peers

Fri, 25 Jun 01:30 pm

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Buying activity led the Indian markets to gain some momentum as the benchmark indices cut a substantial portion of their losses during the previous two hours of trade. At present stocks from the consumer durables, healthcare and power spaces are leading the pack of gainers while those from the banking and IT heavyweights are trading weak.

The BSE-Sensex is currently trading lower by around 50 points (down 0.3%), while the NSE-Nifty is down by about 15 points (down 0.3%). Stocks from the mid and small cap space seem to have bucked the trend as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.2% and 0.4% respectively. The rupee is trading at 46.47 to the US dollar.

Software stocks are currently trading mixed with Mphasis, Patni Computers and Mahindra Satyam trading firm while Wipro, TCS and Infosys are trading weak. A leading business daily has reported that the Indian telecom giant is looking to sign its first IT outsourcing deal for its African operations. The value of these deals is likely to be US$ 500 m (approximately Rs 22.5 bn). The scope of this deal involves handling back office operations for Africa for the next 8 to 10 years. IT majors IBM and Wipro are believed to be in the race for this contract. During FY10, Wipro earned nearly 8.2% of its revenues from the telecom space as compared to 9.5% during FY09.

It may be noted that both these IT powerhouses have been working with Bharti for a while now. However, IBM has a larger portion of the share of the existing contracts, and apparently is believed to be the front runner for the African deal as well. While there are no official statements from Wipro, the management of Bharti has said that it is in discussion with a handful of IT service companies and as such would be too premature to comment.

Power stocks are trading mixed with Reliance Infra and Reliance Power trading firm while PTC India and Tata Power are trading weak. After being disqualified by NTPC on technical grounds for the bulk supply of super critical boilers, Larsen & Toubro (L&T) plans to restructure its joint venture with Japan's Mitsubishi Heavy Industries (MHI). L&T Power was disqualified on the grounds of insufficient experience and expertise to supply the supercritical boilers and lack of equity partnerships for their manufacturing.

As a result of L&T Power's disqualification, only BHEL was left in the fray. NTPC therefore had to go for retendering. While the process of retendering is expected to take about 3 months, leading to delays in project completion, competition is expected to be much severe. This is because along with BHEL and L&T, several other consortia like BGR-Hitachi, Ansaldo-Caldaie Boilers and Thermax and Babcock & Wilcox Power Generation are also likely to participate. L&T Power is investing almost Rs 36 bn in power generation and related sectors. It has planned to increase its existing manufacturing capacity of steam turbine generators and boiler-turbines-generators (BTG) to 6,000 Mw from the current 4,000 Mw in two years. The company plans to investment Rs 7.5 bn in boilers, Rs 14 bn in forgings, Rs 10.5 bn in turbines and Rs 1.2 bn each in foundry and piping facilities.