Mid, smallcaps in the limelight

Tue, 28 Jun 11:30 am

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Indian stock market pared their opening gains on sell off in heavy weights over the last two hours of trade. Stocks from the realty and IT space are trading weak while stocks from the pharma and consumer durables space are trading firm.

The BSE-Sensex is trading down by 30 points while NSE-Nifty is trading 11 points below the dotted line. BSE Midcap index is up by 0.3% while the BSE Small cap index is trading 0.2% above yesterday's closing. The rupee is trading at 45.02 to the US dollar.

Power stocks are trading firm led by CESC and Torrent Power. As per a leading financial daily, NTPC, India's biggest power company has deferred plans to raise US$ 500 m because of deteriorating sentiment for corporate bonds. The company was planning to issue bonds at an interest rate of 9.25% but investors wanted 9.6%. India is facing high interest rate scenario and thus NTPC wanted to go overseas in search of better deal in the form of lower interest rates. It has also organized roadshows in Singapore and Hong Kong in May this year. Barclays Capital, Citibank, Deutsche Bank and Royal Bank of Scotland were appointed as book runners. However, market does not seem to be favorable at the moment and there are tensions in Greece as well. It may be noted here that NTPC is planning to add 5,000 megawatt of capacity in the next fiscal for which it requires funds. It had sought the help of Ministry of Power to raise funds domestically through tax-free bonds.

Consumer good stocks are trading weak led by Colgate and Paper Products. As per a leading financial daily, Indian FMCG companies are not concerned about the Meteorological Department's forecast that the country might experience a below normal monsoon this year. This is because they believe that demand is unlikely to be impacted. The thought process is that even if the monsoons are at 95% of the long term average, it will not impact consumer spending power. This is because dispersion of rains is the more important factor to consider. As per initial dispersion data, rainfall will be spread evenly across the country.

It may be noted that Indian FMCG market is estimated to be around Rs 1.25 tn and is growing at a rate of 12% per annum. As per reports, the sector is expected to grow by up to 17% and touch Rs 4 tn by 2020. This growth would be driven by increase in rural income and evolving consumer lifestyle and buying behavior. Traditionally, good monsoon plays a major role in FMCG firm's rural sales as farmer's income and consumption power is determined by agricultural output. However, below normal monsoon may slow the growth of the sector by 2-3%.