Increased buying activity led the Indian markets to recovered their losses and rise above the dotted line during the previous two hours of trade. The market breadth currently is positive as the advance to decline ratio is poised at 1.4 to 1 on the BSE. Stocks from the IT, realty and FMCG spaces are leading the pack of gainers, while those from the metal, oil & gas and auto spaces are amongst the key losers.
The benchmark indices are currently trading flat with the BSE-Sensex trading higher by about 10 points (about 0.1%), while the NSE-Nifty Index is trading lower by about 5 points (0.1%). Stocks from the midcap and small cap spaces are currently trading marginally lower. The rupee is trading at 45.56 to the US dollar.
Auto ancillary stocks are currently trading firm led by Exide Industries, Asahi India, Munjal Showa and Bosch. Gains in the stock of Exide Industries are on the back of the company looking to raise capital by selling about 50 m shares to qualified institutional buyers (QIBs). As per a leading business daily, the company has fixed the floor price for this exercise at about Rs 108 per share. As such, it would end up raising about Rs 5.4 bn from the same. These proceeds will be used for research and development (R&D) initiatives as well as for adopting new technologies for the future.
We are not sure whether these R&D initiatives would help Exide improve its product portfolio. However, if it does, it would be a step in the right direction as it would give the company additional revenue streams. On the other hand, if the company is able to improve the quality of existing products but not pass on the prices to its customers, it would be a disadvantage. As of now, investors seem to have favoured this move as the stock is trading higher by about 4%.
Stocks of cigarette companies are currently trading firm led by ITC, Godfrey Phillips and VST Industries. According to a leading daily, ITC is planning to increase the prices of its cigarettes. This is a result of the excise duty hike imposed on cigarettes in the Union Budget 2010-11. The impact on ITC's tobacco business due to this increase has been 17%. While in the past the government has imposed heavy excise duty on cigarettes, the effect of these increases has been passed on entirely by ITC. It has been seen in the past that increase in prices due to excise duty hikes has affected the company's cigarettes volumes marginally if at all. However, due to the sharp increase in excise duty this year we would like to wait and see what the effect of this increase would have on the sales of the company.