Realty stocks drag the markets

Wed, 15 Dec 09:30 am

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Led by concerns of an impending hike in interest rates in China, key Asian markets have opened today on a weak note. China and Hong Kong, down 0.6% and 0.7% respectively, are leading the fall currently. As for the Indian markets, these have also opened marginally in the red. Realty and banking stocks are leading the losses currently. IT and energy stocks are however trading with some gains.

The BSE-Sensex is trading lower by around 50 points (0.2%), while the NSE-Nifty is down about 20 points (0.3%). Mid and small cap stocks are also trading weak, with the BSE-Midcap and BSE-Smallcap indices down by 0.1% apiece. The rupee is trading at 45.07 to the US dollar.

Stocks of oil marketing companies (OMCs) are seeing good buying interest as of now. These gains have come as one of the OMCs - BPCL - has raised petrol prices by Rs 3 per litre while keeping diesel prices unchanged. This hike in petrol prices has been done to partly make up for the higher cost of crude oil, which has touched the US$ 90 per barrel mark. The other two large OMCs - HPCL and IOC - are however still working out the price hike number. But their hikes are not expected to be meaningfully different than BPCL's hike. As a matter of fact, these three OMCs dominate India's fuel retailing business, with around 90% share of the market. The Rs 3/litre hike in petrol prices is lower as compared to the OMCs' demand for a Rs 5 hike, as they were asked to tone down the hike by the oil ministry. Anyways, this is the fourth price hike taken by OMCs in the past six months. And if this were to continue, given that global crude prices are showing no signs of cooling down, it would only add to the already high inflation that Indian consumers are bearing as of now. But then, that is what current oil economics demands.

Mining major MOIL had a wonderful listing on the bourses today. The stock listed at Rs 565, or almost 51% higher than its issue price of Rs 375. The company had recently raised Rs 12.6 bn from the primary markets through an IPO (100% offer from sale from the Government of India) that was oversubscribed almost 55 times. MOIL accounts for around 50% of India's total manganese ore production. Its annual production stands at 1.1 m tonne. What is more, it is a debt-free company with a healthy balance sheet and strong cash flows. Over the last four years, the company has posted strong growth in both topline and bottomline, with the same growing at average annual rates of 31% and 42% respectively. However, the biggest risk with MOIL is the company's sensitivity to the steel industry which consequently makes manganese ore prices volatile in nature. Hence, its profit margins are volatile.