Volatility continues in the market

Mon, 19 Jul 01:30 pm

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After crossing the dotted line and moving into the positive, Indian indices are now trading flat as markets remain volatile over the last two hours of trade. Stocks from PSU and consumer goods space are trading firm while stocks from the realty and FMCG space are trading weak.

The BSE-Sensex and NSE-Nifty are both trading flat. BSE-Midcap index is up by 0.2% while BSE-Smallcap index is trading 0.4% above last week's closing. The rupee is trading at 47.03 to the US dollar.

Stocks of FMCG companies are trading mixed with Tata Coffee and Godfrey Phillips trading firm while VST Industries and Lakshmi Energy are trading weak. VST Industries released its 1QFY11 results last week. The company's top line remained flat, growing by 1.4% YoY. This was due to flat demand for cigarettes and benign tobacco prices. However, the company's operating margins fell by 6.7% as a result of higher advertisement costs and higher other expenditure as a percentage of sales. On the other hand, the company gained some benefit from a fall in raw material prices. Net profit of VST Industries' fell by 25% YoY as a result of lower operating income. However, the company benefitted from lower effective tax rate which helped prop up the bottom line.

Stocks of tyre manufacturers are trading mixed with Ceat trading firm, while MRF and Apollo Tyres are trading weak. A leading business daily has reported that the government is mulling reducing the import duty on natural rubber, a key raw material for tyre manufacturers. At present, the import duty on the commodity stands at 20%, while that on imported tyres (finished products) is at 10%. It may be noted that the tyre manufacturers have been requesting the government to reduce duty considering that rubber prices in India are quite high. It is reported that rubber prices in India stand at about Rs 170 to Rs 180 per kg. In the global markets, rubber prices are at levels of Rs 150 per kg. Rubber has been a commodity in demand in India on the back of strong auto sales over the last year, leading to higher tyre production. It is reported that production of truck and bus tyres increased by 15% and 21% respectively during FY10 as compared to a year ago.

Auto manufacturers have risen prices of their vehicles a couple of times this year. While there have been various reasons for the same, one of them includes higher prices of tyres. On the back of the same, they have been importing a substantial portion of their tyre requirements. This in turn has had an impact on the tyre domestic tyre manufacturers.