Energy stocks drag indices lower

Thu, 15 Jul 11:30 am

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After starting today's session on a volatile note Indian indices are currently trading flat. However, other key Asian markets have lost some ground and are marginally in the red. Stocks from FMCG and metal space are trading strong while stocks from energy and telecom space are bearing the brunt of profit booking.

The BSE-Sensex is trading up by around 5 points, while the NSE-Nifty is up by about 1 point. However, buying interest is being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.4% and 0.6% respectively. The rupee is trading at 46.71 to the US dollar

Auto stocks are trading mixed with Bharat Forge and Tata Motors leading the gains. Maruti and M&M are trading in the red. As per a leading news daily, Maruti plans to regain its lost market share by pushing rural sales. The company plans to increase its share of rural sales to 20% from current 17%. It should be noted that Maruti's market share has dipped below 50% against newer rivals since the start of 2010. Strategy to push sales in the rural market is expected to fill the gap and help the company regain its lost market share. The company also has tailor made products for the rural markets to serve the purpose namely Alto, Omni and Maruti 800. It has appointed rural executives to target the remote areas. We believe the strategy to focus on rural markets is a step in the right direction in light of ever increasing competition in the auto space.

<>Exide Industries announced that it is increasing its capex plans to Rs 4 bn for FY11. It plans to increase capacities across its six existing plants and the new one at Ahmednagar. This investment will be funded through its QIP proceeds. The company had raised Rs 5.3 bn in March 2010 through a QIP. Exide typically invests around Rs 1.5 - Rs 2 bn on capital expenditure. However, now due to a shortfall in supply it has to invest more in increasing capacities. Post recession, when the auto sector bounced back the company found it difficult to cater to the increased demand from original equipment manufacturers (OEMs) due to a supply crunch. It lost market share because of this. The company is planning to increase capacities by 28% on SLI (four-wheeler batteries) and by 60% on motorcycle batteries.

Exide, used to import around 70% of its chief raw material, lead. However, it now sources 42% from two captive smelters it acquired two years ago. With lead prices still being volatile, the company plans to source 70% of its lead requirements from captive smelters in phases over three years. This will help reduce input costs. The company is open to both organic and inorganic growth for the same. The company's board also recently approved acquiring the entire holding in its Bangalore smelting unit Leadage Alloys India.