Smallcaps outperform their peers

Fri, 6 Aug 01:30 pm

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Persistent buying activity led the Indian indices to steadily move upwards during the previous two hours of trade. Stocks from the FMCG, consumer durables and auto spaces are leading the pack of gainers, while those from the banking and engineering spaces are amongst the top losers. The overall market sentiment seems optimistic as the advance to decline ratio is poised at 1.7 to 1 on the BSE.

The BSE-Sensex is trading up by around 40 points (up 0.2%), while the NSE-Nifty is trading higher by about 15 points (up 0.3%). However, buying activity seems to be skewed in favour of stocks from the mid and small cap spaces as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.7% and 1% respectively. The rupee is trading at 46.02 to the US dollar

Hotels stocks are currently trading mixed with Taj GVK and Oriental Hotels trading weak, while Indian Hotels and Hotel Leelaventure are trading firm. The stock of Indian Hotels is in favour on the back of two key developments. Firstly, the company has planned a Rs 9.6 bn expansion. Secondly, it is also looking at increasing its room rates in the coming months. In its recently concluded AGM, the company’s management stated that it is looking at new projects both in the domestic and overseas markets. These new projects would be coming up in regions such as the Middle East, North Africa, South America, Abu Dhabi, Egypt, Morocco, Mexico and the British Virgin Islands under various management contracts. However, it also added that it would be quite selective in its expansion plans as efforts to increase margins are also there. In fact, this would be one of the key reasons why the company is looking at increasing the tariff rates going forward. All said and done, these developments are definitely signs of improvement for the company and the hotel industry as a whole. A leading business daily has indicated that Indian Hotels would be hiking tariffs after a period of about two years.

In addition to all this, the company’s promoters are looking at increasing stake from the current levels of 29%. Further, the company’s management also indicated that it is looking at listing its subsidiary Roots Corporation Limited, which owns the Ginger brand of hotels. But that would be once it has 50 hotels up and running. At present, it operates 21 hotels.

Healthcare stocks are currently trading firm led by Wockhardt, Fortis Healthcare and Piramal Healthcare. Novartis announced its numbers for the quarter ended June 2010 recently. The company reported a revenues growth of 10% YoY during the quarter. This growth was led by its OTC and animal health businesses which grew by about 16 to 17% YoY each. The company's other segment - pharmaceuticals and generics, which contribute to nearly 30% and 40% of the company’s revenues, grew at a slower pace of 9% YoY and 4% YoY respectively. As the company's expenses increased at a faster pace as compared to the revenues, its operating profits declined by 10% YoY. During the quarter, operating margins stood at 20.3% as compared to 24.8% during the corresponding quarter last year. The key reason for the same was a considerable rise in staff costs (as percentage of sales). Novartis’ profits were down by 1% YoY. Lower interest costs, tax expenses and depreciation charges were reasons for the lesser profit decline.