Mid, smallcaps not in favour today

Wed, 25 Aug 01:30 pm

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While the Indian indices languished in the red for most part of the previous trading session, they began to move upwards as buying activity intensified. While realty and metal stocks are seeing the maximum sell-off at the moment, IT and FMCG stocks are seeing some buying interest.

The BSE-Sensex is currently trading down by around 60 points (down 0.35%), while the NSE-Nifty is down by about 20 points (down 0.4%). Mid and small cap stocks are also seeing some pressure with the BSE-Midcap and BSE-Smallcap indices trading lower by 0.8% and 0.9% respectively. The rupee is trading at 46.94 to the US dollar.

IT stocks are trading mixed with Patni Computers and Mphasis trading firm, while Wipro and Financial Technologies are trading weak. As per a leading financial daily, Tata Consultancy Services (TCS) has bagged Rs 1.5 bn e-governance contract from the Madhya Pradesh government. This contract is the Madhya Pradesh government's initiative of ‘Integrated Financial Management Information System' to monitor the state's financial transactions on a real time basis. TCS will be implementing the software platform to help the state revenue department develop an integrated solution to automate public provident fund management, human resources and payroll management, and pension management. Other than TCS, Infosys was also in the fray for this contract. However, Infosys lost despite being the lowest bidder as TCS quoted lower operational expenses.

Auto stocks are currently trading weak led by Hero Honda, TVS Motor, Ashok Leyland and Maruti Suzuki. The management of two-wheeler major Hero Honda is of the belief that India's fast growing auto market will be soon hit a speed breaker as it expects demand to slow down during the second half of this year. The reason for the same would be the increase in interest rates, as the RBI is trying to tame high inflation. Despite four hikes in interest rates since March this year, inflation levels have not budged below the 10% mark. Higher interest rates will bring down the demand for auto loans. In addition, two-wheeler companies are also fighting high input costs. And since competition in the Indian two-wheeler market has increased and is expected to further increase, passing on prices to customers will not be an easy task. While competition from existing players is intensifying on the back of new launches from their respective stables, new entrants such as Mahindra & Mahindra are also looking at aggressively foraying into the two-wheeler sector.

The company's management however, believes that the auto industry will grow at a pace of about 12% over the next three years. This is a sharp contrast to the 26% YoY growth during FY10.