Small and midcaps in favour today

Tue, 19 Oct 01:30 pm

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The Indian markets continued to trade in the neutral zone during the previous two hours of trade. Currently, stocks from the healthcare, auto and banking spaces are leading the pack of gainers, while those from the IT and metals spaces are leading the pack of losers. FMCG and power stocks are currently amongst the lowest gainers. The overall market sentiment, however, paints a different picture as the advance to decline ratio is poised at 1.8 to 1 on the overall BSE.

The BSE-Sensex and the NSE-Nifty are currently trading flat. On, the other hand, midcap and smallcap stocks are seeing some interest as the BSE-Midcap and BSE-Smallcap indices are up by about 1.1% each. The rupee is trading at 44.41 to the US dollar.

Stocks of capital goods companies are currently trading mixed with Triveni Engineering and Alstom Projects trading weak, while LMW and Suzlonare leading the pack of gainers. A leading business daily has reported that engineering and construction major L&T has received an order of Rs 15 bn from DB Power. As part of the project, the company will execute the balance of plant (BoP) work for DB Power's 2x600 MW thermal power plant in Chhattisgarh. This project is expected to be completed within a period of 31-months. As part of this project, L&T will design, engineer, supply, erect and commission the BOP equipment and systems on an engineering, procurement and construction (EPC) basis. This will be a positive for the company, as it would add to its order backlog. It may be noted that and end of the quarter ended September 2010, L&T had an order backlog of almost Rs 1.2 trillion. This is nearly 3.4 times its FY10 revenues.

Further, the company has been in the limelight today over who will take chairmanship in the company once Mr. A.M. Naik, L&T's current Chairman retires. It has been reported that he is scheduled to step down in two years. While these discussions have been ongoing for a while now, the recent induction of Mr. Ravi Uppal (who heads L&T Power) to the company's board (as a whole time director) are adding to the buzz of him taking over from Mr. Naik. What may actually happen remains to be seen.

Energy companies are trading up led by Gujarat State Petronet and BPCL. As per a leading financial daily, state run India Oil Corporation (IOC) will be coming out with a public issue even bigger than the Coal India Limited issue. The company is expected to start short listing merchant bankers next week to raise about Rs 190 bn. While half the proceeds will go to the government which will be offloading 10% of its stake in the company, the remaining money will go to the company (which will sell another 10% stake) for building new refineries. According to a government official, the issue will hit the market in January 2011. In may be noted that the government has to meet its disinvestment target of Rs 400 bn this fiscal. Post the issues of Coal India and Power Grid, the government would have mopped up about Rs 220 bn. With the issue of IOC, Hindustan Copper and Manganese Ore, the total proceeds would cross Rs 350 bn. Furthermore, with the SAIL issue of Rs 80 bn, the government would achieve its disinvestment target.