Sensex Opens 250 Points Higher; Telecom Stocks Rally

Thu, 8 Mar 09:30 am

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Asian stock markets are in positive territory in morning trade as concerns about a global trade war eased after the White House indicated that some countries could be exempt from President Donald Trump's planned tariffs on steel and aluminum imports. The Nikkei 225 is up 0.75% while the Hang Seng is up 1.47%. The Shanghai Composite is trading up 0.20%. Overnight, US markets closed mixed.

Meanwhile, Indian share markets have opened the day on a strong note. BSE Sensex is trading higher by 250 points and NSE Nifty is trading higher by 75 points. S&P BSE Mid Cap is trading higher by 0.7% and S&P BSE Small Cap is trading up by 0.9%.

Gains are largely seen in realty stocks, metal stocks and software stocks. The rupee is trading at Rs 64.96 against the US$.

The Market cap to GDP ratio for Indian companies is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it's relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India's GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

In news from steel sector, as per a leading financial daily, Tata Steel Ltd has emerged as the highest bidder to buy a controlling stake in Bhushan Steel Ltd, which is currently undergoing bankruptcy proceedings.

Reportedly, Tata Steel has offered close to Rs 348 billion as upfront payment to banks and an additional Rs 12 billion to operational creditors. In addition, Tata Steel has also offered 12% equity stake to lenders in Bhushan Steel. With this, Tata Steel has outbid rival JSW Steel Ltd.

Bhushan Steel is the largest manufacturer of auto-grade steel in India and owes close to Rs 440 billion in debt to various lenders.

The company is into manufacturing of flat products, hot rolled and cold rolled coils, besides operating a galvanised coil and sheet line. Its clients include General Motors Co., Hyundai Motors Co., Ford Motor Co., Mahindra and Mahindra Ltd and Eicher Tractors Ltd.

Tata steel share price opened the trading day up by 1.3%

Telecom stocks opened the trading day on a strong note with Idea share price and Bharti Airtel share price leading the gains.

As per a leading financial daily, the government approved a relief package for the stressed telecom sector, easing spectrum-holding caps and extending the payment period for spectrum acquired in auctions to 16 years from 10 years.

The Union Cabinet has approved two key measures in the telecom sector to facilitate investments, consolidation in the sector, and enhancing ease of doing business. These include restructuring the deferred payment liabilities of the spectrum auction of telecom service providers and revising the limit of the cap for spectrum holding for telecom service providers.

As per the reports, the government expects to receive more than Rs 744.46 billion from this move by 2034-35. Restructuring the deferred payment liability will increase the cash flow for the telecom service providers in the immediate timeframe, providing them some relief.

The cabinet approved raising the overall spectrum cap per operator in a telecom circle to 35% from the current 25%. It also scrapped a rule that restricted operators from holding more than 50% spectrum in a single band in a circle.

The earnings of telecom operators, grappling with a heavy debt load, have come under further pressure following the entry of Reliance Jio Infocomm Ltd in September 2016.

Moving on to news from airlines stocks. As per an article in The Business Standard, the Competition Commission of India (CCI) has imposed a penalty of over Rs 540 million on Jet Airways, SpiceJet and IndiGo for fixing fuel surcharge.

The penalty levied on Jet Airways is Rs 398.1 million, IndiGo was fined Rs 94.5 million and SpiceJet Rs 51 million. The CCI acted on a cartelisation complaint by Express Industry Council of India against Jet, IndiGo, SpiceJet, Air India and GoAir.

In November 2015, the CCI had imposed a penalty of Rs 1.51 billion on Jet Airways, Rs 637.4 million on IndiGo and Rs 424.8 billion on SpiceJet for cartelization. The fine corresponded to 1% of the annual revenue of the companies. This time, the penalty has been brought down as the commission has considered only the relevant turnover.

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