Metal stocks out of favour

Wed, 9 Dec 01:30 pm

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After opening the day on a negative note, Indian Indices continued to trade in the negative territory. Barring information technology, the other major sectoral indices are trading on a negative note. Stocks from the metal,  telecommunication and pharmaceutical space are bearing the maximum brunt.

The BSE-Sensex is trading lower by 121 points (down 0.5%) and the NSE-Nifty is trading down by 40 points (down 0.5%). Both, BSE Mid Cap index and BSE Small Cap are facing the maximum heat and are trading lower by 1% and 1.6% respectively. Gold, per 10 grams, is trading at Rs 25,540 level. Silver, per kilogram, is trading at Rs 34,397 level. Crude oil is trading at Rs 2,560 per barrel. The rupee is trading at 66.79 to the US$.

As per an article in leading financial daily, Ashok Leyland's joint ventures (JV) are in deep trouble and this is forcing the company to review its investment plan. Growth has stalled in two of its partnerships, one with Japan's 'Nissan' for light commercial vehicle (LCV) and the other with US based 'John Deere' for its earth moving equipment.

Reportedly, the company has decided to write off atleast Rs 3.8 billion in the two ventures. Further, it is also considering whether or not to continue with the partnership.

The company wanted to de-leverage its business model from its core business of trucks and buses which is prone to cyclical changes. Hence it diversified in areas such as manufacturing generation sets, transmission system for vehicles, defence logistics and information technology.

The JV with Nissan started off well with the introduction of LCV named 'Dost'. However, since then the partnership has run into deep troubles. The JV's next set of offering namely 'Stile' and 'Evalia' failed miserably in the market with the joint venture reporting a loss of Rs 7.9 bn in FY15. Similar is the case with 'John Deere' wherein there has been no noteworthy developments off-late.  Doubts are also being raised as to who should infuse funds in order to revive the JV.

Radhika Pandit, the automobile analyst, recently released a detailed analysis of the company's results (subscription required). In the note Radhika explains factors driving the performance of the company in this period and what to expect going forward. If you are interested in the stock, then this is a must read!

As per an article in leading financial daily, rating agency, Fitch, retained India's sovereign rating at BBB-minus with a stable outlook. BBB-minus is the lowest investment grade. Further, the ratings agency forecast the real GDP growth to accelerate to 7.5 per cent in the current financial year, followed by 8 per cent in FY17. The pick-up in growth will largely be driven by the government's higher capital expenditure and gradual implementation of a broad-based structural reform agenda. To add to this, Reserve Bank of India's (RBI) policy rate cuts will also contribute to the higher growth as stated by the ratings agency.

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