Indian Share Markets Open Flat; Metal Stocks Witness Selling

Wed, 24 Jan 09:30 am

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Asian stock markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.23% while the Hang Seng is down 0.49%. The Nikkei 225 is trading down by 0.55%. US stocks advanced on Tuesday, as strong results from Netflix helped lift the S&P and Nasdaq Composite, but the Dow Industrials were hemmed in by declines in Johnson & Johnson and Procter & Gamble.

Back home, India share markets opened the day on a flattish note. The BSE Sensex is trading higher by 11 points while the NSE Nifty is trading lower by 15 points. The BSE Mid Cap index and BSE Small Cap index opened the day down by 0.1% & 0.2% respectively.

Sectoral indices have opened the day on a mixed note with FMCG stocks and energy stocks witnessing maximum buying interest. While, metal stocks and capital goods stocks opened the day in red. The rupee is trading at 63.77 to the US$.

Oil & gas stocks have opened the day on a mixed note with Gujarat Gas Ltd and BPCL being the most active stocks in this space. As per an article in a leading financial daily, ONGC has entered into short-term loan agreements with three banks to part-fund its acquisition of HPCL.

Accordingly, the company has entered into agreements with Punjab National Bank, Axis Bank and Bank of India on 22 January for loans totalling to Rs 180.6 billion. The agreements are for short-term loans to part-finance the acquisition of HPCL.

Reportedly, PNB will lend Rs 106 billion, while the loan amount from BOI will be Rs 44.6 billion and that from Axis Bank will be Rs 30 billion.

Further, the company is likely to sign-up more loan agreements to pay for acquiring government's 51.11% stake in HPCL for Rs 369.2 billion. ONGC is to pay the government for the stake within this month, the reports noted.

Notably, the acquisition would create India's first integrated oil company. This would be ONGC's biggest acquisition and second buyout this fiscal after its Rs 77.4 billion acquisition of 80% stake in Gujarat State Petroleum Corp's KG basin gas block.

As per ONGC, the company's board has approved raising of the borrowing limit from Rs 250 billion to Rs 350 billion.

This will be the company's first ever debt.

One shall note that, the company had on 20 January announced buying of government's 51.11% stake in HPCL for Rs 473.97 per share in an all-cash deal that is to be closed before the month-end.

So, what lies ahead for the merged entity? Richa Agarwal, our oil & gas sector analyst has shared her views in the recent edition of The 5 Minute WrapUp. Here's a snippet of what she wrote:

• "A fall in the oil prices has dented the profitability of oil exploration companies such as ONGC. The merger with a downstream company will help ONGC de-risk its business. ONGC will also benefit from the huge fuel retail network of HPCL."

Going forward, whether the move will be executed well or will lead to further complexities and integration issues instead of synergies will be the key thing to watch out for.

Meanwhile, after three years of underachieving its disinvestment targets, the government is back with a bang. This time, it wants to focus on strategic stake sales of non-public sector units (PSUs) and areas where disinvestment has so far been poor. FY15-16 saw no disinvestment through this route.

Centre Gets Cracking on Disinvestment

For FY18, the total budgeted disinvestment target has been set at Rs 725 billion.

The biggest strategic disinvestment planned for this fiscal is the 51% stake sale in HPCL to ONGC. At current valuations, this deal would fetch the government more than Rs 300 billion, surpassing its strategic sale target for the year.

ONGC share price opened the day up by 0.9%.

Moving on to the news from global markets. Claiming a big win, US President Donald Trump signed a bill to end a three-day government shutdown after striking a deal with Democrats to hold a debate on the future of over 700,000 young undocumented immigrants.

Trump signed a bill into law after the House of Representatives voted 266 to 150 to extend federal funding for another three weeks.

Senate Democrats dropped their opposition to the plan after receiving a commitment from the ruling Republicans toward securing the fate of hundreds of illegally brought to America as children.

Reportedly, the measure funds the government till 8 February, before which the Democrats and Republicans need to agree to a long- term solution to the government funding and on issues related to illegal immigration.

Claiming victory in his standoff with Democrats, Trump signed the measure into law and government operations would return to normal.

Thousands of federal employees who had been placed on temporary, unpaid leave since Saturday breathed a sigh of relief.

Further, Trump stated that he will make a long-term deal on immigration only if it is good for the country and will work towards solving the problem, once the government is funded.

Notably, there have been four government shutdowns since 1990. In the last one, in 2013, more than 800,000 government workers were put on temporary leave.

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