Smallcaps outperform larger peers

Thu, 3 Dec 12:30 pm

   Previous Close   

   Pre-Open   

   10:30 am   

   02:30 pm   

   Closing   

Despite some volatility, the Indian markets continued to trade well above the dotted line during the previous two hours of trade. Currently, the overall advance to decline ratio is poised at 2.4 to 1 on the BSE. Buying activity is being witnessed in stocks across sectors led by realty, metal and healthcare. Stocks forming part of the capital goods and IT space are however, amongst the lowest gainers.

The BSE-Sensex and the NSE-Nifty are trading higher by about 110 points or 0.7% and 30 points or 0.6% respectively. The BSE-Midcap and BSE-Smallcap indices are trading firm as well, up by around 0.8% and 1.3% respectively. The rupee is trading at 46.27 to the dollar.

Auto stocks are currently trading firm led by Maruti Suzuki, TVS Motor and M&M. Gains in the stocks from this sector are on the back of strong auto sales during the month of November. Two-wheelers major, Bajaj Auto reported a strong 73% YoY increase in total volume sales. This includes sales of two and three wheelers. While sales of motorcycles grew by 84% YoY, those of three-wheelers increased by 25% YoY. It may be noted that about 60% of the sales during the month were contributed by the company's Discover and Pulsar brands. On the export front, the company performed well as sales increased by 46% YoY.

Exports formed about 36% of total sales during November 2009. The same figure during the same month last year stood at 42%, indicating a strong growth in domestic demand. It may be noted that the volume growth is high on the back of a low base effect. While this was on the back of the economic slowdown and high borrowing rates that prevailed in the markets around this time last year, the fact that the company was primarily focusing on urban markets should not be ignored as well. However, with its renewed focus and launches aimed at the rural markets, it seems as if Bajaj Auto's strategy is going as intended.

IT stocks are currently trading firm led by Satyam, Tech Mahindra and HCL Technologies. A leading business daily has reported that IT majors such as TCS and Wipro are planning to follow a new method of recruitment. This model is termed as a just-in-time (JIT), which allows a company to recruit employees only when the deals are closed. This is quite different from the method that was being followed earlier, wherein companies used to hire a large number of resources and put them on the bench until projects were signed.

It appears that this method is one of the learnings of the turmoil that the sector witnessed last year. While the JIT method would allow efficient use of personnel by improving the utilisation rates, it would also help the company control employee costs. Currently employee costs form about 50% of IT companies' revenues and around 70% of their total expenses. Also, utilisation rates are very important to IT firms as a marginal change in the same can have a significant impact on operating margins. As per the management of TCS, the bench strength of IT companies will not be eliminated after this model comes in place. However, the aim is to minimize it.