Sensex mimics Asian gloom

Wed, 7 Jul 11:30 am

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After starting today's session on a negative note, Indian indices have plunged deeper into the red during the last two hours of trade. Other key Asian markets are also trading flat to negative territory, with Hong Kong leading the losers (down 1.2%). Stocks from consumer durables and realty space are witnessing selective buying interest while stocks in the oil and gas and banking space are witnessing a sell-off.

The BSE-Sensex is trading down by around 87 points, while the NSE-Nifty is down by about 30 points. Some buying interest is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.3% and 0.4% respectively. The rupee is trading at 47.02 to the US dollar

Retail stocks including Shoppers Stop, Pantaloon and Trent are trading firm. This is on the back of the government starting up a debate on opening up of the retail sector for foreign direct investments (FDI). Currently, FDI in multi-brand retail is prohibited in India. They government believes that the FDI will help farmers earn more money and also keep the price line under check. There is a large requirement for funds in back-end infrastructure according to the government. It recently issued a discussion paper where it has sought feedback from stakeholders on various issues. These issues range from allowing foreign retail chains to open stores in select cities to government approval for opening each store, mandatory hiring of rural population and sourcing from SMEs (small & medium enterprises). We believe that before coming to any decision the government needs to work on a regulatory framework for protecting the interests of small retailers.

Auto stocks are trading mixed with Maruti leading the gainers. M&M and Tata Motors are trading flat. Riding on strong sales of its new 'Discover' model, Bajaj Auto's market share has increased from 25% to 34% for the quarter ended June 2010. It should be noted that Hero Honda's market share fell from 56% to 47% during the same period. Bajaj Auto sold 114,000 units of 'Discover' in June, overtaking Hero Honda's 'Passion' (106,000 units in June) but trailing its market leader, 'Splendor' (160,000 units in June). Thus the new model has enabled Bajaj Auto to regain its market share from Hero Honda.

Bajaj Discover's monthly average volumes have grown from an average of 24,000 in the first quarter of launch (of the 100 cc) to an average of 110,000 in the last quarter. The company is planning to expand its motor cycle capacity by 300,000 per annum and expects to produce 170,000 units of 'Discover' bikes a month. The company believes that if this model sustains its sales momentum it can overtake Splendor in the next three to six months. We however believe that the high sales growth may not be sustainable in the longer term.