Are shipping stocks sailing smoothly?

The shipping space is being seen a lot of buying in the past few weeks. CNBC-TV18 analysts brought attention to the shipping sector on the September 7 and since the last 26 trading days, GE has increased the stock price by about 25%; there is a gain of about 68% in case of Mercator Lines.

 

These are the two stocks which the analysts had particularly focused on and SCI has increased by around 30% in the stock price.

 

The fundamentals remain the same except that there is one more factor, which got added in - the tanker freight performance has started going up in the recent past. The BDI Index has performed; YTD, it gave a return of 147%. This is the index, which actually covers the spot prices among the freights all across the globe and this month, it has actually gained about 16%.

 

Particularly this week, it has gained about 12% so that is the robustness that CNBC-TV18 analysts see in the BDI Index. The correction which it had; about 22% correction in May, seems to be a small blip in front of these numbers and since that correction, it has gained about 1%-5%.

 

Analysts feel that the fundamentals remain strong, there is strong order book for the vessels, in fact, recently SCI has put in order for four vessels with Bharti Shipyard that amounted to about USD 89 million, which will be delivered only in 2011.

 

The global demand for oil and commodities remains strong. The shipyards are at full capacity, the congestion at port still holds good. So these are the structural things, which need time for the demand to be met over the next few years.

 

Tanker freights, which has seen a dip of about 50%-70% in the prices, has again regained about 30%-50% of those prices in the recent past. So these companies, which are into the tanker segment also, can be expected to perform well in the near past.

 

To substantiate all this, analysts highlight the FII figures and the MF figures; they have increased the stake in these companies. FIIs have actually increased a stake in GE Shipping, Mercator Lines, SCI and Varun Shipping taking the stake of GE Shipping all the way from 14% to 19%. Same is the case with Mercator Lines all the way from 15% to 19%. So that is the level of purchase, which FIIs have done.

 

In case of mutual funds, they have actually bought in GE Shipping and Mercator Lines this quarter. While they sold GE Shipping in the last quarter, they increased the stake all the way from 4.5% to 5.9%, in case of GE Shipping; same is the case with Mercator Lines. So there is a positive signal in the shipping sector and we could expect that these stock prices would increase further.