Banks and realty stocks aid upmove

Wed, 2 Dec 12:30 pm

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Strong buying activity in index heavyweights helped the benchmark indices gather momentum in the previous two hours of trade. Buying interest is particularly seen in stocks from realty and banking sectors. However, stocks from FMCG and IT sectors have failed to elicit sufficient investor interest.

The BSE Sensex and the NSE Nifty are currently trading higher by around 70 points and 18 points respectively. Stocks from the midcap and smallcap space are also trading in the positive with the BSE MidCap and the BSE SmallCap indices trading higher by 1.1% and 1.0% respectively.

Stocks from the financial sector continue to trade firm lead by IDFC, PFC and HDFC. HDFC, the largest mortgage lending entity in the country has announced a dual rate home loan scheme. Under the scheme, a borrower will be charged a fixed rate of interest upto March 2012 and a floating rate thereafter. This offer is applicable to all new home loan customers who apply before January 31, 2010, and take at least part disbursement before March 31, 2010.

This scheme is expected to help HDFC regain its market share which it had been losing in the last one year. At the same time, we believe that the housing finance company's margins may take a hit in the medium term. Particularly so, because the institution's cost of funds may go up in the near term as it does not have low cost deposits like banks.

The BSE FMCG index has been trading in the red since the start of the session today. The index has been weighed down by heavyweights like ITC and HUL. According to a leading daily, P&G will be launching a mass market detergent this week. This bodes ill for HUL. The latter has been steadily losing market share in this category to regional players and with P&G entering this category, competition is likely to heat up. Moreover, P&G will be launching a mid premium brand fairness cream priced at the same level as HUL's Ponds portfolio.

With P&G getting aggressive, HUL is expected to step up its advertisement and promotion spending for brand building. Given the history of price wars between P&G and HUL, we believe that this is likely to hurt HUL's profitability.