FMCG stocks lead the gainers

Thu, 19 Aug 11:30 am

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After starting today's session above breakeven, Indian indices have continued to gain momentum and are firmly in the positive. All key Asian markets are trading in the positive with China (up 1.3%) leading the pack of gainers. Currently gainers amongst heavyweights in the Sensex are being led by stocks from FMCG and consumer durables space. Stocks from the realty space are trading in the red while IT and PSU stocks are trading relatively weak.

Currently, the BSE-Sensex is trading higher by around 173 points, while the NSE-Nifty is up by about 48 points. Strong buying interest is also witnessed amongst the mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are both trading higher by 0.8%. The rupee is trading at 46.51 to the US dollar.

Aluminum stocks are trading mixed with Hindalco leading the gains, Nalco is trading weak. Ess Dee Aluminum recently announced its 1QFY11 results. The company reported a 17% YoY increase in sales. Standalone sales which make up 80% of Ess Dee Aluminium's consolidated sales grew by 20% YoY, this contributed positively to growth. Sales increased due to higher domestic offtake as the economic recovery picked up pace. Operating income grew by a strong 32% YoY during the quarter. Growth was on the back of higher sales as well as a fall in raw material costs and staff costs (both as a percentage of sales). A 33% YoY fall in other expenditure also led to operating income growth. Net profits of the company grew by 55% YoY aided by an increase in operating income and higher other income.

Auto stocks are trading flat with Bajaj Auto and Bharat Forge leading the gains. However, Tata Motors is trading in the red. As per a leading news daily, Tata Motors plans to raise US$ 700-750 m through the issue of shares with differential voting rights (DVRs). The DVR share issue is a part of the company's plan to raise US$ 1 bn (Rs 47 bn) to retire debt. The DVR shares will be issued on the same terms and conditions of the existing DVRs. Globally the DVR shares trade at a 10-15% discount to ordinary shares as they have limited voting rights. They are issued when the company wants to raise money but does not want to cede voting rights. Tata Motors DVR shares were listed in November 2008 and have 1/10th of voting rights of ordinary shares but give the shareholders 5% higher dividend.

At a time when the company is planning to issue fresh DVRs, institutional investors are of the view that the company should opt for a sponsored issue for its DVRs. In a sponsored issue the company does not issue fresh shares but facilitates the sale of shares from existing ones to the new shareholders in the overseas markets. This reduces the supply of fresh shares and can boost prices in times of demand thereby bridging the gap between the discount in prices prevailing between DVR and ordinary shares.