Commodities, capital goods find favour

Wed, 3 Feb 11:30 am

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The Indian markets continued to trade on a firm note during the previous two hours of trade. Currently, buying activity is being witnessed across sectors led by stocks from the consumer durables, metal, realty and capital goods sectors.

The BSE-Sensex and the NSE-Nifty are currently trading higher by around 306 points and 94 points respectively. Stocks from the midcap and small cap spaces are also in the positive, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 1.4% each. The rupee is trading at 46.06 to the US dollar.

As per a leading business daily, engineering major Siemens has won an over Rs 1 bn contract from the Power Grid Corporation for constructing a new 765/400 kV sub-station at Meerut and augmenting its sub-stations in UP and Haryana. The order is to be commissioned in January 2011. It may be noted that Siemens is already implementing four contracts amounting to around Rs 6.73 bn for Power Grid. It provides 765 kV sub-stations and new voltage which aids Power Grid, to transmit AC power over long distances. However, we believe that volatility in prices of metals like steel, copper and aluminum, which are among the key raw materials for Siemens, will plague continue to company's margins going forward.

According to a leading business daily, FMCG major, Marico is reworking the strategy for its Kaya Skin care business. The personal care company saw a decline in demand for its skin care business on account of reduction in discretionary spend. The company is studying the current retail trends and going forward will focus on operating fewer but profitable clinics. It is expected to halt its expansion plans temporarily until the business becomes more profitable. Rather it will focus on improving the value of services that it offers. As per Marico’s management the Kaya business eroded about Rs 37 m of profits from Marico’s consolidated profits in 3QFY10.

Marico currently it has 84 Kaya clinics in 27 Indian cities and 15 stores in the Middle East. The company has launced many skin and hair care products under the brand Kaya and previously planned to aggressively expand this business. We believe that focusing on profitability and long term growth will be a prudent strategy for the company in prevalent economic environment.