Mid and smallcaps buck the trend

Thu, 17 Dec 12:30 pm

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The Indian stock markets remained very choppy during previous two hours of trade. After opening on a flat note, the indices kept oscillating to either side of yesterday's close. Currently it has again slipped back into the negative territory with stocks from the realty, banking and oil and gas sectors leading the pack of losers. However, stocks from the telecom, IT, consumer durable and healthcare sectors are finding favour.

The BSE Sensex and NSE Nifty traded in the red, down by 27 point and 7 points respectively at the time of writing. However, midcap and small cap companies have manged to buck the trend. The BSE-Midcap and BSE-Smallcap are trading up by 0.8% and 1% respectively. The rupee is trading at 46.77 to the dollar.

As per a leading business daily, Bharti Airtel, is planning to acquire a 70% stake in Bangladesh's telecom company Warid Telecom. It is expected that Bharti will pay US$ 900 m in total out of which US$ 300 will be invested initially. Warid is a JV between Abu Dhabi Group and SingTel which is already a foreign partner for Airtel. Warid which has its strong presence in Bangladesh and Pakistan is also setting foothold in Uganda and Congo. Currently, it has a subscriber base of over 2.8 m in Bangladesh.

It may be noted that Airtel had indicated that it is interested in expanding in the SAARC nations, including Bangladesh. Also it has been constantly eyeing for overseas acquistions ever since its US$ 24 bn merger talk with South Africa's MTN Group fell off. We believe that such small acquisitions particularly in relatively unpenetrated markets like SAARC and Africa can help Bharti which is facing rigorous price wars and declining ARPU (average revenue per user) in the India. The average tele density in Bangladesh is only 29% as opposed to close to 50% in India. So Bangladesh brings in a lot of opportunity for growth. However, as Warid is also operational in Pakistan, there can be some issues on national security. The negotiotions will depend a lot on the clearance from the home ministry. Airtel is currently trading in the red.

According to a leading business daily, Infosys is aiming to increase its revenue from the high-end auto engineering segment. The company is shifting focus towards high-end design for auto segment as it brings better margins as compared to the low end application development and maintenence work. It may be noted that this does not mean an exit from the engineering segment, as hinted by the media recently. This segment contributes around 8% to 10% of company's topline and gives a margin of around 25%. It may be noted that globally engineering services market is worth around US$ 1 trillion and offsoring component amounts to 2% of it. So no IT company can afford to completely ignore it. However, an increased focus on the high-end services will aid Infosys in growing its revenues from the segment in a non-linear fashion. The stock of Infosys is garnering investors' interest.