Consumer goods push markets higher

Mon, 19 Jul 11:30 am

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After starting today’s session on a negative note, the Indian indices have managed to climb into the green. Most key Asian markets have lost some ground and are in the red, China however being the top gainer. Stocks from consumer goods and PSU space are trading strong while stocks from IT and realty space are seeing some profit booking.

The BSE-Sensex is trading up by around 22 points, while the NSE-Nifty is up by about 11 points. However, some 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 47.04 to the US dollar.

Fertilizer stocks are trading mixed. Godavari Fertilizers and Nagarjuna Fertilizers are leading the gains. Rallis India recently announced its 1QFY11 results. The company reported a robust 22% YoY growth in sales during the quarter. Its domestic business performance was good during the quarter. This was on the back of the success of new agrochemical products launched by the company in recent years. New products introduced during the year included ‘Ralligold’ and ‘Taarak’. Its international business segment also recorded an improved performance during the quarter. Rallis’ operating margins fell marginally to 11.2% in 1QFY11. Higher staff costs and other expenditure (as percentage of sales) were the reasons for the fall in margins. Despite the fall in margins, Rallis’ net profits came in higher by 58% YoY during 1QFY11. This was because of a lower tax rate and the absence of one time charges during the quarter. Excluding the extraordinary item, net profit grew by 30% YoY.

Realty stocks are mainly trading negative currently. DLF Limited is the biggest loser in the space. According to a leading business daily, Singapore-based premium luxury resorts chain Banyan Tree is in advanced talks with DLF for buying a controlling stake in Aman Resorts, the Middle East luxury hotel chain. Aman currently operates 23 luxury hotels across Thailand, Bhutan, Cambodia, China, France, India, Indonesia, Laos, Montenegro, Morocco, Philippines, Sri Lanka, the Turks and Caicos Islands and the US. DLF had acquired the hotel chain in November 2007 for US$ 400 m. Divesting stakes in non-profitable and non-core assets is part of DLF’s plan to become a zero-debt company in the next five years. The company’s debt stood at around Rs 160 bn at the end of FY10. DLF is looking at selling a controlling stake (the exact details are unknown) in Aman for around US$ 350 m for this purpose. This has however, not been confirmed by the company. As of now, DLF owns 97% stake in Aman Resorts.

Running hotels and resort chains is not the core competence of DLF. So, it would be sensible on its part to sell a majority stake in the business. The reduction in debt levels will also help clean up the company’s balance sheet.