Flat with a negative bias

Tue, 7 Dec 11:30 am

   Previous Close   

   Pre-Open   

   09:30 am   

   01:30 pm   

   Closing   

After starting today’s session on a negative note in the morning Indian indices are still lingering in the red. However, other key Asian markets are trading mixed with Hang Seng registering marginal gains. Currently, heavyweights in the Sensex are trading weak with stocks from realty and banking space bearing investors brunt. However, stocks from the oil & gas and metal’s space are trading strong.

Currently, the BSE-Sensex is trading down by around 53 points, while the NSE-Nifty is down by about 21 points. Buying interest amongst the mid and small cap stocks is muted as well with the BSE-Midcap and BSE-Smallcap indices trading lower by 0.8% and 1.0% respectively.

Textile stocks are trading weak led by Pioneer Embroideries and Vardhman Holdings. As per a leading financial daily, textile manufacturers are facing pricing pressure and shrinking bottom line as a result of cotton shortages. This is in spite of a consistent order flow and higher cotton output this year. Internationally cotton is ruling at higher prices as a result of supply crunch due to lower output. However, the situation in India is better. The country is seeing an increase of 12% YoY in cotton production. Nevertheless, the country is facing a shortage. This is because traders, particularly multinational trading houses book large quantities of cotton through forward contracts even before the crop hits the markets. This reduces the availability of cotton for domestic players and gives the traders power to manipulate prices. The domestic players are unable to enter such contracts due to lack of capital as the margin money for cotton purchases is high at 25% and the loan period is limited to six months. It may be noted that the current market prices of cotton is around 90% higher than the MSP of cotton which is Rs 23,500 per candy.

Auto stocks are trading strong led by Maruti Suzuki and Bajaj Auto. However, Tata Motors and TVS Motors are trading weak. Amidst rising input cost car makers are set to raise prices from next year onwards. Although Hyundai Motors and General Motors have already announced hikes others such as Maruti Suzuki, Tata Motors, M&M are likely to follow the suit soon. Price increases are likely to be in the range of 1.5-2% as prices of major inputs like steel, rubber and other metals have witnessed an increase over the past few months. It may be noted that until now many companies were absorbing these rising input costs by enhancing operational efficiencies. However, considering the doubling of rubber prices in recent months and a substantial rise in copper prices as well it is evident that most of the companies now are likely to pass on the burden to the consumers in order to evade margin pressures.