Smallcaps move the other way

Fri, 15 Oct 01:30 pm

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The Indian markets lost further ground on the back of persistent selling activity during the previous two hours of trade. Currently stocks from the IT, banking and auto sectors are leading the pack of losers. Stocks from the realty space are the sole gainers as the BSE-Realty Index is up by 0.5%. The market sentiments are slightly tilted towards the pessimistic side as the decline to advance ratio is poised at 1.2 to 1 on the overall BSE.

The BSE-Sensex is trading lower by around 200 points (down 1%), while the NSE-Nifty is down by about 60 points (down 1%). While stocks from the midcap spaces are seeing some pressure, although to a lesser extent, those from the smallcap space seem to have bucked the trend as the BSE-Smallcap Index is trading higher by 0.3%. The BSE-Midcap Index is currently down by about 0.3%. The rupee is trading at 44.06 to the US dollar.

Food inflation numbers for the week ended October 2, 2010 were announced recently. The figure rose at a marginal pace from 16.24% to 16.37%. This increase was led by higher prices of items such as cereals, fruits, select vegetables and milk. During the preceding week, i.e. the week ended September 25, 2010, food inflation numbers had fallen. The overall wholesale price inflation moved up to 8.6% during the month of September as compared to 8.5% in the previous month. As per data, prices of primary articles such as food, non-food articles and minerals rose by 17.5% as compared to last year. Further, fuel and power prices increased by 11.1%, while those of manufactured goods increased by 4.6% on an annual basis. It may be noted that this is the second consecutive month when the overall inflation has been in the single digit. The figure was in double digits for a period of five months till the month of July this year.

FMCG stocks are trading down lead by Godrej Consumer and Pidilite Industries. As per a leading financial daily, FMCG companies including HUL and P&G have increased the retailer margins on their products in response to the tough competition from the retailer's private brands. The margins have seen an increase of 10-25% in leading supermarkets like Big Bazaar and Reliance Retail. However, this increase has not been across the board. Instead the FMCG companies have increased margins only in categories like diapers, ketchups, floor cleaners, soups, breakfast cereals and toothbrush. These are the categories where the private labels have been gaining market share. The friction between retailers and FMCG companies over higher margins and better shelf space has been there for some time now. When FMCG companies refused to increase retailer margins, retailers retaliated by launching their own products and giving them more shelf space and pricing them lower than established brands. This seems to be the international trend which is now slowly coming to India. However, modern retail still forms a small part of sales for FMCG players. Going forward as the sales booked through modern retailers increase, we can expect to see them flexing their muscles and squeezing FMCG companies for higher margins and better terms of sales.