Pharma, energy stocks out of favour

Mon, 12 Jul 01:30 pm

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The Indian markets moved in a rangebound manner during the previous two hours of trade. However, it seems though a fresh round of buying has initiated as the indices began moving upwards at the time of writing. At present, stocks from the realty, banking and IT spaces are leading the pack of gainers while those from the healthcare and oil & gas spaces are trading weak.

The BSE-Sensex is trading up by around 105 points (up 0.6%), while the NSE-Nifty is up by about 30 points (up 0.5%). Stocks from the mid and small cap spaces are also finding some favour as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.2% and 0.6% respectively. The rupee is trading at 46.75 to the US dollar.

Stocks of oil marketing companies (OMCs) are trading weak led by BPCL, HPCL and Indian Oil Corporation (IOC). A leading business daily has reported that OMCs BPCL and IOC are looking at acquiring some of Royal Dutch Shell Plc's Indian subsidiary, Shell India's domestic retail outlets. Shell India has reportedly put up 20 of its 80 retail outlets for sale. In addition, it also has put up certain sites, which it had acquired earlier for setting up such outlets, for sale. This move is despite the recent deregulation of petrol prices. Apart from the fuel price deregulation, this move would make sense for Indian OMCs as they would be able to acquire retail outlets in urban markets, where volumes are comparatively higher. It may be noted that it costs nearly Rs 1.5 to Rs 2 m to set up a low-cost retail outlet in rural areas. However for setting up a retail outlet in metros, the cost shoots up to nearly Rs 10 to Rs 40 m. In addition to the cost of setting up a new outlet, acquiring land for the same is a difficult task by itself.

Hotels stocks are trading mixed with EIH Ltd and Hotel Leelaventure trading firm while Indian Hotels and TajGVK are trading weak. As per a leading financial daily, TajGVK, a joint venture between Indian Hotels and GVK has put on hold its plans for a luxury hotel in Bangalore. The construction as per reports has been deferred by 4 years. This is due to an oversupply of hotel rooms in the city with more rooms coming up in the next 2 years. The ARRs in Bangalore are currently at Rs 7,000, well below their peak levels of Rs 9,000 to Rs 12,000. TajGVK has instead decided to concentrate on budget hotels. The company is planning to set up 6 Ginger hotels across Andhra Pradesh and has already started construction on the first one, located near Hyderabad's international airport. We believe that this is a positive development as there is a lot of demand for fairly priced rooms in India.