A volatile post noon session

Thu, 17 Jun 01:30 pm

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The Indian markets saw a volatile trading session with the benchmark index witnessing alternate bouts of selling and buying during the post noon trading session. At present, the market breadth is neutral as there are equal number of advances and declines on the overall BSE. Most of the sectoral indices are trading weak led by IT, FMCG and metals. However, stocks from the capital goods, oil & gas and pharmaceuticals sectors have managed to find some gains.

The BSE-Sensex is trading higher by around 5 points, while the NSE-Nifty is down by about 9 points. While the BSE-Midcap Index is trading flat, the BSE-Smallcap Index is trading 0.4%. The rupee is trading at 46.54 to the US dollar.

Auto stocks are currently trading weak led by Hero Honda, Ashok Leyland and Maruti Suzuki. A leading business daily has reported that Mahindra and Mahindra (M&M) has been entangled in a law suit with its very own distributor in the US. M&M and Global Vehicles, the distributor in the US, had signed an agreement way back in September 2006. As part of the agreement, Global Vehicles would be the sole distributor for M&M's vehicles in the US. It has sued the Indian auto major due to the delay in launching its products in the US. Global Vehicles has allegedly spent US$ 35 m in preparation of the launch. It also has signed nearly 360 dealers across the country. The company further claimed that US dealers have spent more than US$ 60 m in franchisee fees for the right to sell M&M's vehicles. While M&M has responded by stating that it will contest the claims, it would definitely create tensions between the two firms, considering that M&M is going ahead with the launch by the end of this year. It would be launching its compact diesel pick-up truck at first. Also, the fact that M&M is the first Indian auto company to foray into the US is a big deal. As per the management, the reason for the delay in launch has been due to changes required to conform with US regulations.

Telecom stocks are trading mixed with MTNL and Tata Communication trading firm, while Bharti Airtel is trading weak. As per a leading daily, Reliance Communication (RCom) is evaluating the option of selling a 26% stake in its wholly owned subsidiary Reliance Globalcom. Globalcom is RCom's undersea optical fiber network and US network business. The value of the stake is estimated at Rs 22 bn. This move is believed to be part of the company's plan to increase the cash on hand and reduce overall debt so as to secure better market valuations for the 26% stake on the block. It may be noted that RCom had recently demerged its tower unit, Reliance Infratel which is expected to generate roughly Rs 150 bn for the company. As per a company official, this stake sale along with the cash inflow from the demerger of Reliance Infratel is expected to strengthen the company's balance sheet and give it more negotiating power.