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Smallcaps & midcaps lead gains
Thu, 26 Aug 11:30 am

After starting today's session on a positive note, Indian indices have managed to stay in the green. Other key Asian markets are all trading in positive territory as well with China (up 0.7%) leading the pack of gainers. Currently heavyweights in the Sensex are trading weak with stocks from FMCG and banking space witnessing gains. However, stocks from IT and oil & gas space are trading negative.

Currently, the BSE-Sensex is trading up by around 45 points, while the NSE-Nifty is up by about 11 points. Some buying interest amongst the mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.5% and 0.6% respectively. The rupee is trading at 46.83 to the US dollar.

FMCG stocks are trading positive with Godrej Consumer and ITC leading the gains. Hindustan Unilever (HUL) has raised prices of its major soap brands 'Lux' and 'Lifebuoy' by Rs 1 each and has cut product weight while retaining the price. The cut in the weight (grammage) of Lux soap means the company has effectively hiked prices by 10%. The two soap brands contribute 67% of HUL's soap segment revenues. This is the first price hike the company has taken in 20 months. The company was earlier trying to focus on regaining market share in light of increasing competition. However, it is now trying to focus on increasing profitability.

These price increases are mainly for offsetting higher raw material costs. Prices of palm oil, a key ingredient in soap making were up 20% in July, and still continue to trade higher. In 1QFY11, the company's operating margins fell by 1.9% during the quarter to stand at 14%. This move, to increase prices, indicates that pricing power is coming back to the company. Further price hikes are expected in the near future to help improve margins.

Oil & gas stocks are trading mixed with HPCL leading the gains. Cairn India was one of the biggest losers. Post signing the non-compete agreement with ADAG, Mukesh Ambani run, Reliance Industries made a strong move into telecom. And now it is entering the financial services space as well. According to a leading business daily, the company is close to inking a deal with DE Shaw to launch a US$ 700-800 m infrastructure fund. Besides the fund activities, the two are also looking at carbon trading and other areas. The exact financial terms of the tie-up are yet not disclosed.

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