Energy, power stocks energise markets

Thu, 31 Dec 02:30 pm

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Although the Indian markets saw some volatility during the previous two hours of trade, they are still trading well above the dotted line. The overall market breadth remains optimistic as the advance to decline ratio is poised at 1.5 to 1 on the BSE. Presently, buying activity is being witnessed in stocks across sectors led by capital goods, energy and power stocks. Stocks from the healthcare sector are however seeing some pressure.

The BSE-Sensex and the NSE-Nifty are in the green, up by around 120 points (0.7%) and 35 points (0.7%) respectively. The BSE-Midcap and BSE-Smallcap indices are trading higher by 0.2% and 0.7% respectively. The rupee is trading weak at 46.64 to the dollar.

FMCG stocks, which have been among the worst performers in 2009, closed the last trading session of the year with marginal gains. This was led by stocks like Pidilite, HUL, and Dabur. Talking specifically about HUL, India’s largest FMCG company had a tough ride during the year. And its investors were left high and dry as the stock managed a mere 6% gain in an otherwise brilliant year for the broader markets. The reason for this is not far to find.

The company seems to have misjudged the preference of its consumers and ended up with the wrong strategy during the year. With rising raw material costs, it increased prices of its products while shifting focus to premium products which were perceived to be recession proof. However, consumers in an effort to find value offerings either switched brands or down traded. This benefited HUL's competitors, who absorbed rising costs and took hit on their margins but were able to gain market share. The result was that HUL lost its customers and now faces the daunting task of regaining its lost market share.

Engineering stocks are currently trading mixed. The gainers are being led by Praj and Elecon engineering. Sanghvi Movers and Shanti Gears are however seeing profit booking currently. Amongst engineering and capital goods stocks in the BSE Sensex, L&T has turned out to be the top gainer for the year 2009. At the start of 2009, the stock traded at about Rs 775. At the time, the effects of the credit crisis here in India were close to their peak in terms of both; the psychological effect on investors’ minds and the ground realities in the business world. This had a profound impact on L&T. The company is from the capital goods sector, which is reliant to a large extent on large sized capital investments by its customers. Credit is the life blood of capital intensive investments by businesses.

In a world where banks were being almost begged by the RBI to not stop lending, it goes without saying that the outlook for investments, and consequently the outlook for a capital goods company like L&T, was considered to be dismal. It is this outlook that led L&T’s stock price to fall down to a low level of about 15 times its FY09 earnings. Once this outlook began to change with the easing of the credit crisis and the favourable outcome of the country’s general elections, L&T’s earlier beaten down price laid the ground for a swift and substantial recovery. The result? The stock has ended the year with a swanky gain of about 117%, thus making it to the list of one of the top gainers amongst the Sensex companies for 2009.