Smallcaps completely out of favour

Thu, 9 Dec 01:30 pm

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Continued selling pressure led the Indian markets to decline during the previous two hours of trade. Stocks from the consumer durables, realty and auto spaces are leading the pack of losers. IT and FMCG stocks are amongst the top performers.

The BSE-Sensex is currently trading down by around 170 points (down 0.9%), while the NSE-Nifty is down by about 55 points (down 1%). Stocks from the mid and small cap spaces are under pressure as the BSE-Midcap and BSE-Smallcap indices are trading lower by 2.8% and 4% respectively.

Metal stocks are trading weak led by Hindustan Zinc, Hindalco and Ispat Inds. However, selected stock such as Jindal Saw and Mah. Seamless are trading marginally in the green. Novelis, the Canadian unit of Hindalco, on Friday will close a deal that will refinance the debt taken by Hindalco, but at a higher rate. The Aditya Birla group has mandated five banks for the US$ 4 bn loan-cum-bond financing that will partly refinance the loans that were taken when Hindalco acquired Novelis for US$ 6 bn in 2007. The rate of interest for the loan-cum-bond issue would be about 7%. The deal will be split into a US$ 2.5 bn seven year bond and a US$ 1.5 bn senior secured term loan. There is also an US$ 800 m asset-backed revolving credit facility.

At about 7%, the pricing of the bond issue will be costlier than the five-year loan of US$ 1 bn that Hindalco had raised in 2008, at 315 basis points above the Libor. The move to raise funds will deleverage Hindalco so that it can focus on expansion projects.

A leading business daily has reported that Rallis India has acquired majority stake in a Bangalore based seeds research company named Metahelix Life Sciences. The consideration for the same is Rs 995 m, which has been funded through an all cash transaction. As per the company, this is its first inorganic foray into seeds, which is a key focus area for the firm. Rallis has acquired about 53.5% stake in Metahelix and further plans to infuse abut Rs 250 m to raise its stake to a little over 59%. It also added that it plans to acquire full stake over a period of five years. As per Rallis’ director, expectations are of Metahelix to exceed revenues of Rs 10 bn cumulatively over a period of five years. During FY10, the company reported revenues of a little over Rs 9 bn, while revenues during 1HFY11 stood at Rs 5.7 bn.