Flat with a positive bias

Wed, 4 Aug 11:30 am

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After starting today’s session on a positive note, Indian indices are struggling to gain further ground. Other key Asian markets are in the red with Japan (down 2%) leading the pack of losers. Currently, heavyweights in the Sensex are trading weak with stocks from FMCG and Oil & gas space facing the brunt of selling activity. However, stocks from IT and consumer goods space have eked out some healthy gains.

The BSE-Sensex is trading up by around 24 points, while the NSE-Nifty is trading flat. Buying interest is muted amongst the mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.1% and 0.5% respectively. The rupee is trading at 46.18 to the US dollar

Engineering stocks are trading mixed with Crompton Greaves and BHEL leading the pack of gainers. However, Punj Llyod is deep in the red due to poor set of results. Elecon engineering announced its 1QFY11 results recently. Revenues increased 16% YoY largely due to growth in the material handling equipment (MHE) business (which recorded a 16% YoY growth during the quarter and contributed to 60% of the period's topline). On the other hand, its transmission equipment (TE) business witnessed a growth of 11.4% YoY during the quarter. Operating margins contracted by 0.3% YoY to 15% in 1QFY11 due to increase in raw material and employee costs as a percentage of revenues. Net profits increased 57% YoY due to fall in interest cost. However, other income declined significantly, partially arresting the bottom line growth.

Oil and Gas stocks are trading mixed with Aban Offshore and Essar Oil leading the gains. Reliance Industries and GAIL are at the receiving end. The government announced that it will provide Rs 140 bn in cash to Indian Oil, HPCL, and BPCL. This cash inflow will be given in order to make up for the losses incurred on selling fuel below cost price (under-recovery) in 1QFY11. These oil retailing giants lost about Rs 202 bn on selling diesel, domestic LPG and kerosene below cost in the first quarter. This is because government support did not come in before their accounts were closed resulting in huge losses in 1QFY11. The Government’s cash infusion covers approximately 70% of the losses while the rest will be met by the way of cash dole-outs after the Parliament passes subsequent demands for grants. For FY11, Indian Oil, BPCL and HPCL are projected to lose around Rs 570 bn. As a result of the bleeding losses of these oil companies, the government freed petrol prices last month. It should be noted that the three major retailers currently sell diesel at a loss of Rs 2.8 a litre, kerosene at a discount of Rs 15.4 per litre, and domestic LPG at a loss of Rs 170.6 per cylinder