Smallcaps find favour

Tue, 7 Sep 11:30 am

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After starting today's session on a positive note Indian indices have managed to sustain gains. Other key Asian markets are trading mixed. Currently heavyweights in the Sensex are trading in the green with stocks from capital goods and the oil & gas space witnessing buying interest. However, stocks from the banking and IT space are trading weak.

Currently, the BSE-Sensex is trading up by around 65 points, while the NSE-Nifty is up by about 18 points. Strong buying interest is also witnessed amongst the mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading up by 0.5% and 1% respectively. The rupee is trading at 46.69 to the US dollar.

Paint company stocks are mainly trading positive with Jenson & Nicholson and Kansai Nerolac leading the gains. Kansai Nerolac plans to invest Rs 6 bn over the next 3 years to up its production capacity by 50%. The company currently has a capacity of 2-lakh tonnes per annum. The company has also set aside around Rs 780 m for brand-building activities and increasing the number of its paint stores across-India. It currently has 100 colour stylers and 25 impression style zone outlets. It plans to add nearly 150 and 40 more stores respectively.

Additionally paint prices could increase after October, this year due to a hike in the cost of the key raw material, titanium dioxide (TiO2). During the financial meltdown, companies supplying the raw material did not increase their capacities. Due, to this supply-demand mismatch, paint manufacturers had to import the material from outside at nearly US$ 2,500 - 2,600 per tonne. This cost is likely to go up by US$ 150 post October. Paint prices have already risen by 7%, including a 2% excise duties.

NBFC stocks are trading strong with SREI Infra Finance and Sundaram Finance leading the gains. However, PFC and HDFC are trading weak. As per a leading news daily, PFC is planning to raise Rs 11.8 bn through foreign loans from Japanese and Chinese markets to fund the power projects in India. The company is in the process of arranging ECBs and is in talks with various financial institutions including Bank of China, Mitsubishi Bank, and Bank of Tokyo. This would be the company's first ECB in this fiscal. Last year PFC had raised Rs 13.8 bn via ECB from SBI's London branch to fund the power generation projects in India. Meanwhile, the company is also gearing to up to raise more funds by the way of an FPO by the end of the current fiscal. The company is planning to raise fresh equity to the tune of 10% while the government may disinvest 10% in the PSU via the FPO.