Sensex Holds 32,000-Mark; FMCG Stocks Gain the Most

Thu, 13 Jul 01:30 pm

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After opening the day on a strong note, the share markets in India continued to witness buying interest. Barring PSU stocks, oil & gas stocks and metal stocks, all sectoral indices are trading in green, with stocks in the FMCG sector & capital goods sector leading the gains.

The BSE Sensex is trading higher by 237 points (up 0.7%) while the NSE Nifty is trading higher by 63 points (up 0.6%). The BSE Mid Cap index and BSE Small Cap index are trading up by 0.3% & 0.4% respectively. Gold prices, per 10 grams, are trading at Rs 27,914 levels. Silver price, per kilogram is trading at Rs 36,973 levels. Crude oil is trading at Rs 2,924 per barrel. The rupee is trading at 64.50 to the US$.

Cement stocks are trading on a mixed note with Birla Corp and Heidelberg Cement leading the gains. As per an article in the Livemint, average cement prices are expected to rise by 6% year-on-year (YoY) and 7% on quarter-on-quarter (QoQ) basis across the country despite volume decline in the southern and central regions.

As per the report, the raw material cost is also likely to go up this year. Total costs per tonne are expected to be up by 7% YoY led by price increase in pet coke, diesel, slag and packing material, among others.

With the onset of monsoon, volume flow and prices are likely to remain muted.

The cement volumes in the southern and central regions are likely to be down YoY, owing to weak off-take in Tamil Nadu due to political matters and Uttar Pradesh, where sand mining issue continue to impact off-take. Volumes in the eastern region are likely to grow sharply by 20% YoY, led by strong demand in Bihar, Jharkhand and Odisha.

And if one were to go by the numbers as reported by Business Standard, the valuations of the Indian cement companies are obscenely expensive.

Globally, cement makers are valued at 26x their latest annual earnings and 1.6x times their latest book value. The corresponding ratio for Chinese players is 23x and 0.95x respectively. On the other hand, Indian cement makers are valued at 48 times their net profit in the last financial year.

Here's what Tanushree Banerjee, Co-head of Research has to say about the sector:

• "There is no denying the performance of the cement companies have shown improvement off late. However, the current valuations certainly warrant a caution. For readers who are looking forward to commit their money in cement stocks should factor in realistic growth expectations.
  
  One would do better to look into long term growth for every cement company. And then judge whether the valuations are reasonable enough. If not, then it is best to stay away from the sector. "

Moving on to the news from stocks in automobile sector. Tata Motors reported a 1.7% decline in global sales at 90,966 units last month, including Jaguar Land Rover (JLR). Tata Motors had sold 92,551 units in June 2016.

In the passenger vehicles category, global sales stood at 60,725 units last month as against 59,831 units a year ago - a growth of 1.5%.

Sales of luxury brand Jaguar Land Rover were up 4.7% at 49,422 units in June as compared to 47,197 units in the corresponding period of 2016. Tata Motors said sales of its commercial vehicles declined 7.57% to 30,241 units as against 32,720 units a year ago.

Notably, uncertainties with regard to Goods and Services Tax (GST) pulled down sales of passenger vehicles in June. Domestic passenger vehicle sales declined by 11.2% to 198,399 units in June from 223,454 units in the same month last year, according to data released by the Society of Indian Automobile Manufacturers (SIAM).

Car Sales Hit GST Bump

The overall automotive industry witnessed some volatility during the first quarter of FY18, as the market experienced uncertainty post the BS-IV transition issues and prior to GST implementation, and automakers, besides offering pre-GST discounts, made efforts to re-align inventories.

Nevertheless, as per Rahul Shah, Co-head of Research, the blip is expected to be temporary. With vehicle prices coming down post GST, low interest rates, attractive discounts and expectation of good monsoons will provide support to the industry.

Tata Motors share price is presently trading down by 1%.

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