Auto, realty weighs on markets

Mon, 21 Feb 11:30 am

   Previous Close   

   Pre-Open   

   09:30 am   

   01:30 pm   

   Closing   

Indian indices are trading flat with a negative bias as investors traded cautiously over the last two hours of trade. Stocks from the consumer durables and oil & gas space are trading firm, while stocks from the auto and realty space are trading weak.

The BSE-Sensex is down by 25 points while NSE-Nifty is trading 10 points below the dotted line. BSE Midcap index is down by 0.5%, while BSE Small cap index is trading 0.4% below Friday’s closing. The rupee is trading at 45.13 to the US dollar.

Food stocks are trading mixed with Nestle India and Wadala Commodities trading firm, while United Spirits and Ruchi Soya are trading weak. Nestle India released its 4QFY10 results last week. The company’s top line grew by a strong 23.4% YoY. This performance comes on the back of strong domestic performance. While the domestic sales increased by 22.9% on the back of strong volume growth and increase in realization, exports grew by 7.6% YoY. Operating margins of the company increased by a spectacular 5.3% on the back of fall in all operating expenses as a percentage of sales. While raw material costs grew by 22% YoY, staff costs fell by 14.3% YoY. Other expenditure grew by 16.1% YoY. Net profit of Nestle increased by an impressive 80% YoY. This was faster than operating profit growth and was a result of higher other income. Net profit growth could have been higher but for increase in effective tax rate. Effective tax rate increased from 28.1% YoY in 4QCY09 to 29.7% YoY in 4QCY10.

Steel stocks are trading weak with Adhunik Metaliks and Sesa Goa leading the pack of losers. However, Jindal Steel & Power is trading strong. In a bid to expand its international operations, SAIL plans to set up three steel plants in Oman, Indonesia and Mongolia with assured raw material linkages. The three plants will produce 3 mt of steel each with total investment requirement of Rs 450 bn. It may be noted that a 1 mt capacity requires an investment of Rs 50 bn. While the Indonesian and Mongolian facilities will use coal as fuel, the plant at Oman will use gas.

It may be noted that energy accounts for one fifth of the total cost of producing steel. While the Indian government has allocated gas to priority sectors including steel, India is facing acute shortage as the demand in a growing economy exceeds supply. In such a scenario, steel companies are evaluating opportunities to set up plants abroad which have assured coal/gas supply and also offer labor-cost arbitrage.