Mid & smallcaps see buying interest

Fri, 27 Aug 11:30 am

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After languishing in the red for most of the previous two hours of trade, Indian indices crossed the dotted line into green territory as buying interest returned. Stocks from metal and PSU space are among the top gainers while stocks from IT and FMCG space are the top losers.

The BSE-Sensex is trading up by 4 points while NSE-Nifty is trading 1 point above the dotted line. The BSE-Midcap index is up by 0.7% while BSE-Smallcap index is trading 0.7% above yesterday’s closing. The rupee is trading at 46.82 to the US dollar.

Power stocks are trading mixed with PTC India and Neyveli Lignite trading firm while Tata Power and Gujarat Industries Power are trading weak. As per a leading financial daily, Tata Power has entered the race to acquire GMR’s 50% stake in global power generation firm Intergen NV. It may be recalled that GMR invested close to US$ 1.2 bn to buy the stake in Intergen. Intergen controls 12 power plants in UK, Netherlands, Mexico, Australia and the Philippines. However, the returns generated by Intergen are currently not sufficient to even cover the interest charges on the loan taken to fund the acquisition.

Tata Power has a total generation capacity of about 3,000 MW and has significant presence in Saudi Arabia, Bangladesh, Kuwait, Algeria, Myanmar and Thailand. Other bidders in the race include Chinese major Huaneng. While this acquisition will be beneficial for Tata Power as it will help increase geographical reach and added generation capacity the price paid for the acquisition will be the crucial point to note in this deal.

FMCG stocks are trading mixed with United Breweries and Tata Global Beverages leading the gains. Godrej Consumer was on the receiving end. In face of increased competition in rural India, small towns are emerging as a new hiring ground for FMCG companies. Companies are hiring field staff in areas including Kalpa in HP, Mangaliya in MP, Kota in Rajasthan and Shirdi (Maharashtra). This hiring is to push products as diverse as shampoos, edible oil and even pizzas. The main reasons for this rural push include a combination of various positive drivers. These include a good monsoon so far this year, farm-loan waivers, higher disposable incomes, media penetration, low-priced unit packs, and government programmes (National Rural Employment Guarantee Scheme).

Most companies are looking at this rural push in a big way and want to increase their rural coverage, as these markets are still relatively underpenetrated. Hindustan Unilever plans to hire 25,000 field staff, to sell products in nearly 150,000 villages, while Dabur intends to hire 200 indirect employees through its stockists in villages and small towns. Marico completed hiring a support staff of 220 in small towns Madhya Pradesh. Domino’s (owned by Jubilant Foodworks) plans to hire 1,000 employees in cities like Ranchi, Kota and Gangtok in the next year. ITC, Nestle, GlaxoSmithKline etc are also in talks to double their direct employee strength in small towns and villages.