Skewed picture

The Sensex gives a misleading picture of the fall in the market

If these scrips had fallen at the same rate as others, the Sensex would have been closer to 8400 levels. ITC (which gained 9 per cent for no particular reason except for the fact that it went ex-bonus, ex-split on Wednesday) alone wiped out about 60 per cent of the loss made by the Sensex stocks that fell.

In fact, the lack of overall market breadth and the concentrated buying in a few stocks with a high weighting in the Sensex and the BSE PSU index gives the impression that there's been a concerted effort to keep market indices afloat.

The rosy picture that indices portray do not hide the fact that there was wide spread selling going on in the markets on Wednesday. Nearly 90 per cent of all stocks that traded on the BSE ended in negative territory.

Things were slightly better for large cap stocks - about 80 per cent of stocks in BSE's 'A' category of stocks fell - but the trend in mid and small cap stocks was ominous.

Especially since many of these stocks were stuck on the lower end of their circuit filters, which means that many investors in these stocks have been unable to sell.

Outside the 'A' category of shares, about 30 per cent of all traded scrips were stuck at the lower end of the filter. Of the 1000-odd scrips that have been relegated to the trade-to-trade or 'Z' categories, nearly 60 per cent were stuck at the lower end of the filter.

Significant trading action had shifted to these segments of the market in recent days, and if the trend continues, traders in these segments of the market may not be able to get out of their positions.

The good thing is that the risk in this market has come out in the open.

Hindalco expansion

Hindalco's expansion plan has once again revived fears whether capacity expansion in non-ferrous metals could run ahead of demand in the medium term.

In the domestic market, the current oversupply of aluminium, albeit small, is expected to widen to 200,000 tonne by FY08, thanks to several players implementing their expansion plans.

However, analysts point out that in key export markets for Indian players such as the Middle East and Asia, demand is forecast to exceed supply by about 3.5-4 million tonne in FY08, mainly because of the requirements of the booming transportation and housing sectors.

The company is already one of the lowest cost producers in the world and the planned expansion in its refinery and smelter capacities is expected to build on existing efficiencies.

Nevertherless, given the ratio for the rights issue and assuming that this issue would comprise the entire Rs 2,500 crore planned to be raised by the company, existing shareholders would be getting the stock at about Rs 108.

If that happens, the planned rights issue could dilute equity by 25 per cent. As a result, the stock slipped about 3.5 per cent to Rs 155 on Wednesday.

However, as the exact timing of the rights issue is not yet finalised, analysts at brokerage houses have not yet made any changes in the company's earnings forecast. The current consensus earning forecast for the company is Rs 16.5 for FY06.

Tata-Fiat alliance can fuel growth for both

Come 2007 and the passenger car market is going to see a host of new models -M&M will unveil the Logan, Maruti could be rolling out a diesel vehicle while Nissan, Audi and Daihatsu too are believed to be ready to launch some cars. Seen against this backdrop of intense competition, it's a good idea for the Tatas to try and team up with Fiat.

The Tata group needs technology and Fiat is one of the best in the business. The Fiat group needs money, and payments for technology would help.

If the two can work out an arrangement whereby Fiat is able to gets its unit at Ranjangaon up and running ""there's only a shed there now- and offer some spare capacity to the Tatas, which they need, it would be a win-win situation.

The Tatas could upgrade the Indica with new engine technology from Fiat and be ready to face competition. The new 1.3 litre multi-jet diesel engine technology is what they will be eyeing.

Fiat, which has made a success of its ventures in Poland and Brazil, can also take a shot at the Indian market with some premium models, such as the Punto perhaps.

Perhaps they could also use the distribution network of the Tatas. If the venture materialises, the Tatas would have taken a leaf out of the Mahindra book"" M&M has struck up an alliance with Renault for the Logan.

There's no point in re-inventing the wheel for technology when one can shop for it so easily.

With contributions from Mobis Philipose, Amriteshwar Mathur and Shobhana Subramanian