Realty and FMCG drag markets

Mon, 18 Oct 11:30 am

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After starting today’s session on a negative note Indian indices sunk further into the red. However, other key Asian markets are trading mixed with Nikkei up and Hang Seng down. Currently, heavyweights in the Sensex are trading weak with stocks from realty and FMCG space bearing investors brunt. However, IT stocks are trading flat.

Currently, the BSE-Sensex is trading down by around 204 points, while the NSE-Nifty is down by about 69 points. Buying interest has been muted amongst the mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading lower by 1.1% and 0.8% respectively. The rupee is trading at 44.19 to the US dollar.

IT stocks are trading mixed with Moser-Baer India and Wipro leading the losses. HCL Tech and Mphasis were trading strong. The rupee has been strengthening over the past few months causing IT biggies to worry. The stronger rupee will impact into the profit margins of the companies such as TCS, Infosys etc. who are big in IT exports. These companies want the RBI to intervene to prevent the currency from appreciating further. While announcing its results, the Infosys CFO, said that RBI should take a cue from China in learning how to curb volatility. The inflow of overseas money into Indian equities has already totaled over US $22 bn this year. Due to the stronger rupee demand, Infosys expects the rupee to appreciate 4.5% in FY11 compared to FY10, thereby shrinking its profit margins.

According to a leading business daily, other IT companies such as Mindtree, Sonata Software and Mindteck have a different opinion. They believe that tampering with exchange rates will affect growth in India. They also believe that the RBI should not follow highly protectionist policies. Some are more concerned with inflation, as the appreciating rupee helps control India’s oil import expenditure, thus benefitting the country.

Rallis announced its September quarter results recently. Top line increased 15% YoY. It should be noted that the rainfall for the current fiscal has been the best in three years and this obviously had a rub off effect on Rallis’ performance. The international business also performed well with revival in global markets. Operating profits grew 19% YoY on account of the significant fall in raw material costs offset to a great extent by the strong jump in other expenses. Bottom line too registered a strong growth and increased 28% YoY led by operating margin expansion and lower tax outgo.