Metal, telecom stocks lead the gains

Tue, 28 Dec 09:30 am

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Asian markets have opened on a negative note today. Benchmark indices of China (down 1.7%) and Hong Kong (down 1%) are reeling under selling pressure. The US markets closed yesterday with 0.2% losses. As for the Indian markets, these have opened marginally in the positive. Metal and telecom stocks are leading the gains currently. Auto and energy stocks are however trading with some losses.

The BSE-Sensex is trading higher by around 35 points (0.2%), while the NSE-Nifty is up about 8 points (0.1%). Mid and small cap stocks are also trading with gains, with the BSE-Midcap and BSE-Smallcap indices up by 0.3% apiece. The rupee is trading at 45.15 to the US dollar.

Software stocks have opened today on a mixed note. While gains are seen in Mphasis and Wipro, selling pressure marks trading in Patni Computers and Infosys. In what is one of the biggest deals in the Indian IT sector, Nasdaq-listed iGate is set to acquire its bigger peer and India's sixth largest technology company Patni Computers. The deal is reportedly valued at US$ 1 bn or at about 8% premium to the latter's closing price yesterday. This deal comes after several quarters of speculation on the future of Patni, as its key shareholders had been looking to sell their stake. The deal also involves a non-compete clause that restricts the Patni brothers to start a similar business within two years of the sale. But we see this clause as irrelevant given that the brothers have not been able to manage well their current business at Patni itself. iGate is a firm promoted by Mr. Phaneesh Murthy, who was once the blue-eyed boy of Infosys while leading its global marketing efforts till 2002. Interestingly, the company is just around 25-30% of the size of Patni in terms of sales and profits. It was listed on the Indian stock exchanges till about the end of 2007, when it got itself delisted.

Cement stocks have also opened mixed. While gains are seen in Ambuja Cement and Shree Cement, selling is being witnessed in Mangalam Cement and Ultratech Cement. As per a leading business daily, Swiss cement major Holcim has started raising its stake in its Indian subsidiary ACC through the creeping acquisition route (which allows promoters to increase their stake in a company by up to 5% in a financial year without making an open offer). The former, along with Ambuja Cements and three other group entities have raise their stake in ACC by 2% between 10th and 24th December 2010. The stake now stands at 48.21%. This move just goes to strengthen the idea about the merger of the three entities – Holcim, ACC, and Ambuja – that will create India's largest cement player by far. We do not see much sense in Holcim having two large competing subsidiaries in India. The biggest problem with the merger of ACC and Ambuja is that both these companies are present in most regions of India and vigorously compete with each other. This is with the exception of south India where Ambuja has a limited presence. And given that both the companies enjoy a very good brand value, the problem also arises in culling one at the expense of another in case of a merger.