FMCG, IT stocks pull markets lower

Tue, 28 Sep 01:30 pm

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The Indian markets drifted deeper into the red during the previous two hours of trade. Currently, barring stocks from the capital goods and power sectors, selling activity is being seen in stocks across the board. Leading the pack of losers are FMCG and IT stocks.

The BSE-Sensex is currently trading lower by about 90 points (0.5%), while the NSE-Nifty is down by about 35 points (0.6%). Stocks from the mid and small cap spaces are however performing relatively better as the BSE-Midcap and BSE-Smallcap indices trading flat. The rupee is trading at 45.25 to the US dollar.

Capital goods stocks are currently trading firm with Siemens, ABB, L&T and BHEL trading firm. A leading business daily has reported that wind turbine manufacturer Suzlon Energy is looking at buying the remaining 9% stake in its German subsidiary Repower Systems AG. While the value of this acquisition is yet unknown, there have been reports that the company had valued 25% stake in the German subsidiary at about US$ 500 m (approximately Rs 22.5 bn). This takes the total valuation of the subsidiary to Rs 90 bn. As such, a 9% stake in Repower would be valued at about Rs 8.1 bn. At the end of March 2010, Suzlon had cash and investments (in mutual funds) to the tune of Rs 30 bn, about 10.5% of their total assets. However, one should keep in mind that the company has built up a debt of about Rs 127 bn, as compared to its net worth of Rs 66 bn debt-equity ratio of 1.9 times). As such, the net debt figure is approximately Rs 97 bn, making the debt-equity ratio quite high.

This development is quite contrary to what the reports that were circulating earlier, when the company was looking to sell a 25% stake in Repower. Now, it is being reported that Suzlon is looking at selling 26% stake in its Belgian subsidiary Hansen Transmissions, provided it gets a good price.

Pharma stocks are trading mixed with Glenmark Pharmaceuticals and Biocon trading firm while Dr. Reddy's and Lupin are trading weak. Glenmark Pharma has announced that it has postponed the IPO of its subsidiary Glenmark Generics indefinitely despite obtaining an approval from the SEBI. This is because the company feels that Glenmark Generics does not have any requirement for funds as of now. It may be noted that late last year, Glenmark Pharma had raised Rs 4.1 bn through a qualified institutional placement (QIP). This had helped the company improve cash flows and bring down debt. At present, the company's debt stands at over Rs 15 bn. For the current quarter (July–September), Glenmark Pharma expects a healthy revenue growth on the back of strong demand from the US and Latin American markets.