Midcaps, smallcaps in the limelight

Thu, 13 Jan 11:30 am

   Previous Close   

   Pre-Open   

   09:30 am   

   01:30 pm   

   Closing   

Indian indices continued their journey south on profit booking in heavy weights over the previous two hours of trade. Stocks from the IT and banking space are trading weak, while stocks from the capital goods and realty space are trading firm.

The BSE-Sensex is down by 127 points while NSE-Nifty is trading 39 points below the dotted line. BSE-Midcap is trading up by 0.3%, while BSE Small cap index is trading 0.6% above yesterday’s closing. The rupee is trading at 45.13 to the US dollar.

Steel stocks are trading mixed with MMTC and Jindal Saw Ltd trading firm, while Tayo Rolls and Tata Steel are trading weak. As per a statement by Tata Steel, the company has registered a 4.8% YoY dip in sales for 3QFY11. Sales for the quarter stood at 5.9 MT as a result of seasonal slowdown in demand from Europe. On a standalone basis, Tata Steel’s sales in India were up by 3% YoY. On the other hand, deliveries in both Europe and South-East Asia were down by 8% YoY and 14% YoY respectively. Other than a dip in sales, Tata Steel expects its operating income to be lower due to higher raw material prices. The company as a whole produced 6.1 MT of steel during the quarter, a majority of which was produced by Tata Steel Europe (formerly known as Corus). The company also added that the pricing environment domestically was mixed during the quarter. South-East Asian operations were marginally affected in 3QFY11 due to rising scrap prices and delay in the increase in the finished steel product prices.

Real Estate stocks are trading firm with Sobha Developers and Ansal Housing leading the gains. However, Lok Housing and Mahindra Lifespace are trading weak. Amidst the liquidity crisis in the banking sector the real estate companies are facing the heat to raise funds to invest in new projects. Apart from the liquidity crunch the recent bribes-for-loan controversy has made banks all the more skeptical in lending to real estate companies. As a result developers have turned towards alternative source of financing like PE funding. But considering the corporate governance issues and overheating in the real estate markets, the PE firms are now looking at a return on capital of about 24-25%. This is significantly higher than a return of about 20% prevailing last year. Nonetheless, developers have been seen negotiating deals even at such higher rates with no other viable option in hand. Raising money at such higher cost will further increase the overall cost of capital thereby questioning the ability of the developers to repay on time.