Profit booking in index heavyweights dragged the indices lower during the previous two hours of trade. Stocks from commodity and banking sectors have been at the receiving end while those from auto and telecom sectors have evinced some buying interest. 4 stocks have been down for every 1 stock that has gained on the BSE Sensex.
The BSE-Sensex and the NSE-Nifty are currently trading lower by around 115 points and 38 points respectively. Stocks from the mid and small cap spaces, however, have managed to stay afloat in the positive territory, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 0.1% and 0.4% respectively. The rupee is trading at 46.60 to the US dollar.
As per a leading business daily, farm equipment and utility vehicles major Mahindra & Mahindra (M&M) is considering a price hike to pass on the rise in input costs to consumers. Of late, commodity prices have been witnessing an upward trend and the surge has been particularly noticeable in case of rubber and sheet metals. Although currently the hike in commodity prices is being absorbed by the company, any further rise can eat into its margins. It may be noted that in 2QFY10 the automobile sector witnessed one of the best margins in many years. The same are less likely to sustainable if commodity prices scale further. M&M and its peers have started feeling the pressure on their margins. We believe that given its pricing power, M&M will be able to pass on the higher cost without impacting its volumes. The stock along with its peers Ashok Leyland and Tata Motors is trading higher currently.
Software stocks are trading a mixed bag currently. The major losers being HCL Tech and TCS. As per a business daily, HCL Tech has won a 30 years outsourcing contract from a UK based insurance firm Equitable Life Assurance. This US$ 200 m contract has been awarded to HCL Tech's UK based insurance business unit. However, complete insurance solutions support would be backed by HCL Tech. This includes policy administration, finance, actuarial services, IT operational support and call centre services. The company expects this deal to generate majority of the cash flows during initial 5 to 6 years. Thereafter, with decline in policy revenues its revenue share would gradually decline. This long term contract is likely to benefit the company's financial services vertical which accounts for nearly one-fourth of the HCL Tech's revenues.