Trading in a narrow territory

Tue, 28 Dec 11:30 am

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After starting today’s session on a cautious note in the morning Indian indices continue to trade in a narrow territory. However, other key Asian markets are trading marginally in the red. Currently, heavyweights in the Sensex are trading firm with stocks from realty and metals space leading the gains. However, stocks from the consumer goods and oil & gas space are trading weak.

Currently, the BSE-Sensex is trading up by around 14 points, while the NSE-Nifty is down by about 3 points. However, there has been some buying interest amongst the mid and small cap stocks with the BSE Midcap and BSE Smallcap indices indices trading higher by 0.15% and 0.41% respectively.

Auto stocks are trading mixed with Force Motors and M&M leading the gains. However, Tata Motors and Eicher Motors are trading weak. In a bid to regain its lost market share to new rivals, Maruti Suzuki plans to launch seven models over the next 2-3 years. It may be noted that since the arrival of new players Maruti’s market share has fallen from 52% in the last year to about 44% as of now. And the primary reason for this fall is capacity constraints which entailed prolonged delivery schedules for some models and a dormant small car portfolio.

Accordingly the company has taken a decision to start its two greenfield production lines in Manesar ahead of schedule. This should ease capacity constraints and provide some cushion on a temporary basis. In addition, the company is also exploring various options like expanding in other segments such as sedans, utility vehicles and SUVs so as to tide off competition. Nonetheless, considering that the Indian auto market is growing at a brisk pace it is difficult to say whether the strategy to expand the production to meet incremental demand will help company regain the lost market share.

Banking stocks are trading mixed with PNB and Indusind Bank trading firm and IDBI Bank and ICICI Bank trading weak. The rally enjoyed by banking stocks over the last 2 years may not continue into 2011. This is because low treasury income, higher provisioning for asset quality and pension liability are expected to put pressure on the bottom line of banks. Moreover, competitive intensity is set to increase with new bank licenses expected to be handed out. Furthermore, if inflationary pressure does not subside, further monetary tightening may also put pressure on bank margins. To top it all, banking stocks have run up quite a bit recently.

However, there is not all bad news for the banking sector. Credit is presently growing at 23% YoY versus RBI's March 2011 projection of 20%. This is indicative of the improving business outlook. With GDP expected to grow at 8.6% during the current fiscal and possibly clocking 9% in 2011, banking sector may continue to witness sustained demand for credit. Improved fiscal outlook next year would also help banks focus on corporate loans.