Sensex scales back to 17,000

Fri, 11 Jun 11:30 am

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Indian markets have managed to sustain the momentum after opening higher in early trades today. Stocks from the energy and realty space are witnessing buying interest. Those from the healthcare and FMCG spaces are among the lowest gainers.

The BSE-Sensex is trading up by around 200 points while the NSE-Nifty is trading up by around 58 points. The BSE-Midcap index is up by 0.9% and BSE-Smallcap index is up by 1%. The rupee is trading at 46.80 to the US dollar.

As per leading news daily, the Bombay High Court has set aside the decision to increase the Floor Space Index (FSI) from 1 to 1.33 in the city of Mumbai. The maximum FSI available in the city is capped at 2. So if the owner/developer wanted to have the maximum permissible FSI of 2 he could buy 1.33 of the FSI from the government while balance 0.67 of the FSI can be bought from the open market in the form of TDRs. But now with the Bombay High court setting aside the decision to increase the FSI the owners/developers will have to buy more TDRs from the open market. This is because the premium FSI of 0.33 will be no longer available from the government. While the prices of the FSI are decided by the government the TDR prices are market determined. This should increase the demand for TDRs and thus a likely increase in prices as well. Realty companies namely HDIL, DB Realty and Akruti City should be the major beneficiaries as they derive majority of their revenues from sale of TDRs.

Auto stocks including Tata Motors and Mahindra & Mahindra (M&M) are trading firm. M&M is currently one of the highest gainers on the Sensex as well. Mahindra Two Wheelers, recently announced that sales in May 2010 reached 8,037 units, almost three times the units sold in May 2009. The company ventured into this market in 2008 post the acquisition of an 80% stake in Kinetic Motor Company.

M&M is set to focus on the electric two-wheeler segment to further generate growth. It recently acquired a majority stake in REVA Electric Car Co Ltd. It can leverage on REVA’s electric technology to work in this segment as well. The market for electric two-wheelers in Indian is expected to rise due to an expected increase in the fuel costs. The price sensitive Indian consumer will prefer the electric scooters as they run on a much lower cost. We expect M&M to derive the benefit of an uptick in demand in this market over the next few years.