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Small and Mid-Caps Surge
Wed, 2 Mar 01:30 pm

The Indian indices have continued to trade on a positive note in the post-noon trading session. Sectoral indices are trading on a positive note with stocks from the banking and realty sectors leading the gains.

The BSE Sensex is trading up 411 points (up 1.7%) and the NSE Nifty is trading up 142 points (up 1.9%). The BSE Mid Cap index is trading up 2.2% while the BSE Small Cap index is trading up by 2.5%. Gold prices, per 10 grams, are trading at Rs 29,124 levels. Silver price, per kilogram is trading at Rs 35,793 levels. Crude oil is trading at Rs 2,323 per barrel. The rupee is trading at 67.65 to the US$.

Telecom stocks are trading on a positive note with Reliance Communications and Tata Communications witnessing maximum buying interest. The government's budget proposal to levy service tax on spectrum trading deals could compel Idea Cellular to pay Rs 5 billion. As per an article in Economic Times, Idea Cellular will have to pay Rs 5 billion to the government for buying Videocon Telecom's 4G airwaves in UP-West and Gujarat if it is unable to close the deal before 1st June.

In November, Idea said that it plans to buy Videocon Telecom's 4G LTE airwaves in the 1800 MHz band in the two circles for Rs 33 billion. The company stated that the transaction would go through on completion of due diligence and written confirmation from the Department of Telecommunications (DoT) on the transfer of rights to use the frequencies. However, both the companies are yet to submit their joint intimation letter to DoT following completion of the due-diligence process.

The Finance Minister in his Budget speech stated that assignment of right to use the spectrum is a service leviable to service tax and not sale of intangible goods. Spectrum or air waves have now been identified as a "tangible asset" and as a result a service tax of 14.5% will be levied on all spectrum acquired through auctions or from other players. Already reeling under stress, telecom players may now face further pressure with this recent move.

Stocks in the power space are trading in the green with Jaiprakash Power and NTPC leading the gains. In another news update, the government is going to auction three ultra-mega power projects (UMPPs) in the current fiscal. These projects may reportedly attract an investment of approximately Rs 900 billion.

Moreover, two UMPPs in Jharkhand are likely to be auctioned in 2016-17. The document on Implementation of Budget Announcements 2015-2016 said that Deoghar and Tilaiya UMPPs in Jharkhand may be bid out in the next fiscal after due process is met, with an investment of Rs 600 billion.

All of these developments come as the government has proposed to set up five new UMPPs of 4,000 MW each in the plug-and-play mode. The government has also stated that all clearances and linkages will be in place before the projects are awarded by a transparent auction system.

The fortunes of power sector have been in dire state for a while now. Inefficiencies and lack of coordination in the upstream segments have raised the cost of power purchased by distribution companies and this is then passed on to the consumers. The distribution side in particular has been bogged down by mounting debt and accumulated losses. This in turn has made their credit worthiness questionable. The accumulated losses have largely been attributed to underpricing, under collection and physical losses on account of technical reasons and non-technical reasons such as theft.

A lot of work still needs to be done for a complete overhaul of the Indian power sector. While the government has planned reforms to revive this sector, it is execution that will be the key to success.

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Mar 22, 2018 11:37 AM