Mid and smallcaps outperform

Thu, 5 May 11:30 am

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Indian stock market indices have been trading flat over the last two hours of trade. Oil & Gas and Consumer durables are the maximum gainers, while healthcare and FMCG stocks are trading in the negative.

The BSE-Sensex is up by 35 points while NSE-Nifty is trading 3 points above the dotted line. However, BSE Midcap and BSE Small cap indices are up by 0.4% and 0.5% respectively. The rupee is trading at 44.57 to the US dollar.

Power stocks are trading mixed with GVK Power and Jaiprakash Power witnessing buying interest while Reliance Power and NTPC are trading weak. As per a leading financial daily, power sector is set to face shortage of coal. It is important to note here that this shortage comes at a time when the power sector is seeing an upsurge in the addition of power generation capacity to the tune of 0.04 m megawatt. The new capacity that is mainly being set up by private players is slated to come up over the next 5 years. This would require an additional coal supply of 313 m tonnes but Coal India is in a position to fulfill the demand up to only 100 m tonnes additionally. Thus, power projects could be left stranded.

For power sector, coal can be procured domestically as well as internationally. In the event of domestic supply being insufficient, the companies would be looking at procuring it from outside but this faces technical problems of blending high-calorific imported coal in the boilers used domestically. Blending imported coal also involves higher costs. It may be noted that, NTPC is currently blending about 10 percent imported coal at an additional cost of 30 paisa per unit (kilo watt hour).

Telecom stocks are trading weak led by ADC India Communication and AGC Networks. Bharti Airtel released its 4QFY11 and FY11 results. The consolidated sales of the company grew by 3% QoQ during the fourth quarter while for FY11, sales of the company grew by a sharp 42% YoY. The big jump in sales for the full year came on the back of inclusion of Bharti's African operations in the consolidated results. Operating margins grew by 1.9% QoQ to stand at 33.5%. This growth was aided by fall in staff costs and lower selling and marketing costs (both as a percentage of sales). Selling expenses were lower during the quarter as the company had incurred a onetime rebranding expense of Rs 3.3 bn the previous quarter. For FY11, operating margins fell by 6.5% to stand at 33.7%. Net profit grew by 8% QoQ. This subdued growth came on the back of increase in effective tax rate. For FY11, net profits fell by 33% YoY. This was due to higher depreciation expense and increase in interest costs. It may be noted that during the quarter mobile subscriber base in India grew by 6% QoQ to stand at 162 m subscribers. Total subscriber base on the network grew by 6% QoQ (including Asia and African operations).