Smallcaps and midcaps lose favour

Tue, 21 Sep 11:30 am

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After opening in the positive, Indian indices have seen some volatility in the last couple of hours of trade, but are now trading strong. Other key Asian markets are mainly trading positive with Japan being the only exception, down 0.3%. Currently, heavyweights in the Sensex are in the green with stocks from consumer goods and IT space witnessing strong buying activity. However, consumer durables and realty stocks were trading negative.

The BSE-Sensex is trading up by around 55 points, while the NSE-Nifty is up by about 16 points. Midcaps and smallcaps have lost investor favour with the BSE-Midcap and BSE-Smallcap indices trading down by 0.7% and 1.2% respectively. The rupee is trading at 45.71 to the US dollar.

NBFC stocks are trading mixed with HDFC, and Mahindra Finance leading the gains. Rural Electrification Corporation (REC) and Power Finance Corp (PFC are trading in the red. Rural Electrification Corporation (REC) announced recently that it has been granted infrastructure finance company (IFC) status by the RBI. This will enable the company to mobilize more funds for the power sector. With its new IFC status, REC can now take additional lending exposure of up to 5% of its owned funds for lending to a single borrower and up to 10% of its owned funds in the case of a borrower group, upto a maximum of 40% of owned funds in the case of a group.

REC is also now eligible for the issuance of infrastructure bonds and for raising funds up to US$ 500 m (Rs 25 bn approximately) through external commercial borrowings (ECBs) in a year. REC is the second company after Power Finance Corp (PFC) to be accorded the IFC status by RBI.

Auto stocks are trading weak with TVS Motors and Ashok Leyland leading the pack of losers. However, Hero Honda and M&M are trading strong. With arch rival Bajaj Auto gaining ground in the entry level bike segment, Hero Honda's leadership position has come under pressure. Hero Honda's market share in the 75-125 cc segments has declined to 68.9% in the April-August period this fiscal compared to 81.8% in the same period last year. It is believed that Bajaj Auto's re-entry into the volume driven 100 cc segment last year has impacted Hero Honda's sales. It should be noted that Bajaj Auto's share in the segment has increased to 19.5% in the last five months. Besides Bajaj Auto, Hero Honda's market share is also being affected by the entry of Honda Motorcycle & Scooter India (HMSI) with 'CB Twister'. Further, capacity constraints are also a major concern for the company.  Right now, the company has three production facilities with total installed capacity of 5 m units and is scouting for locations to set up a fourth one in order to ease capacity constraints.