Investors prefer largecaps over peers

Thu, 3 Jun 01:30 pm

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Trading well above the dotted line, the Indian markets moved in a range bound manner during the previous two hours of trade. Stocks across sectors are trading firm led by those from the telecom, banking and oil & gas spaces. Stocks from the consumer durables and pharmaceutical sectors are amongst the lowest gainers at the moment.

The BSE-Sensex is higher up by 280 points (1.6%) while NSE-Nifty is higher by about 90 points (1.8%). The BSE-Midcap index is trading higher by 1% while the BSE-Smallcap index is trading 1.2% above yesterday's closing. The rupee is trading at 46.61 to the US dollar.

Auto stocks are currently trading firm led by Ashok Leyland, Tata Motors and Maruti Suzuki. Auto stocks have been in demand over the past few days on the back of the strong sales volumes for the month of May 2010. However, it seems as though the management of certain passenger car manufacturers are now worried about margins considering that input costs have been rising. While, passing on costs to customers would be an option to maintain margins, the chances of being impacted on account of rising competition (with the entrance of new players in the recent past, as well as low cost cars) are high. Companies would possibly lose some market share in the process. A leading business daily has reported that domestic carmakers such as Maruti Suzuki, Hyundai Motor India and GM India have decided not to increase prices for now.

The prices of key raw materials, which include steel, aluminium and copper have slumped in recent times. However, when compared on a year on year basis, they are higher by about 20%. While the impact of higher raw materials have not been reflected in the financials of auto majors during the past financial year, the likelihood of them seeing some pressure on margins going forward does stand. It must be noted that auto companies have already had about three rounds of price hikes during the current year. One hike was to cover for the higher input costs. The other two were for higher excise duties as well as for the change in emission norms. As such, the possibility of a significant impact on volumes is possible on further price hikes.

Retail stocks are currently trading firm led by Trent, Shoppers Stop and Pantaloon. A leading business daily has reported that Titan Industries is looking to grow its overseas business by about 5 times over the next five years. The revenues from this business are expected to be at levels Rs 5 bn over this period. In addition, the company's management expects overall revenues to grow by about three times to levels of Rs 140 bn by FY15. Currently the company's revenues stand at about Rs 45 bn. The company earns nearly 65% of its revenues from its jewellery segment, while the balance is contributed by its other business namely watches, eyewear and precision engineering verticals. The watch segment is the major business for the company, contributing to around 10% of revenue at the moment. The revenues from this business stand at about Rs 10 bn. As per the management, revenues from the watch segment are expected to increase to Rs 30 bn 2015. The company plans to do so by increasing its presence in newer regions such as South Africa, Vietnam, Malaysia and other Asian countries. The company already sells titan brand watches in many South East Asian countries. It also sells its products in the Middle East and in certain African nations. In the future, the company also plans to target the large markets of China and Russia. However, one good point here is that it plans on doing so only after establishing itself in the market which it is present in at the moment. It is further reported, that Titan Industries does not plan to export any other product at the moment.