Power, auto stocks cap index gains

Thu, 2 Dec 01:30 pm

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Indian indices continued to trade above the dotted line but remained range bound during the previous two hours. Currently, heavyweights in the Sensex are trading mixed with stocks from the metal, IT and oil & gas space registering strong gains. However, stocks from the auto and power space are trading weak.

Currently, the BSE-Sensex is trading up by around 131 points, while the NSE-Nifty is up by about 41 points. Both the BSE-Midcap and BSE-Smallcap indices are trading higher by 1% and 1.3% respectively. The rupee is trading at 45.30 to the US dollar.

Engineering stocks are trading mixed with Praj Ind and Suzlon in the green while AIA Engineering and Areva T&D are witnessing selling pressure. Engineering and construction major L&T has secured two orders worth Rs 4.1 bn from Hindalco and Sepco-1 for construction of thermal power plant. The first order valued at Rs 2.5 bn has been secured from Hindalco for carrying out steel works for the 6x150 MW captive power plant in Orissa. The second order is worth Rs 1.6 bn and has been obtained from Sepco-1 for the 2x660 MW Talwandi Sabo Power plant in Punjab. The accretion to order backlog thus provide sufficient visibility into the company's long term growth prospects.

Auto stocks are currently trading mixed with Hero Honda, M&M and TVS motors trading weak, while Escorts and Maruti Suzuki are leading the pack of gainers. The stock of Hero Honda is the top loser amongst stocks forming part of the BSE-100 Index as well. This is on the back of news of the company agreeing to increase the royalty payments to its current partners, Honda Motors, Japan. A leading business daily has reported that Hero Honda has agreed to increase its royalty payments to Honda to about 8% of annual sales. This figure is quite high considering that Hero Honda averaged royalty payments of about 2.2% to 3% if annual sales (amounting to about Rs 5 bn). In return, the Japanese firm will provide technology for three new bikes (apart from keeping its existing portfolio intact) and will also sell some stake in Hero Honda to 20% from the current holding of 26%.

It must be noted that there is no official statement made by both the companies. As per the business daily's source, negotiations are at an advanced stage and a final decision would be taken over the next few days. If this information is true this would have a negative impact on Hero Honda as it would directly impact its operating margins. However, it is not clear whether these royalty payments would be on the overall sales or only on the sales of vehicles that use the technology provided by Honda. Nevertheless, even the 8% royalty figure is quite a high figure.