Roadblock in Maruti's Growth Ride, ECBs in Action and Top Stocks to Watch Out

Wed, 30 May Pre-Open

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On Tuesday, share markets in India opened weak, extended losses and ended the day deep in red.

The BSE Sensex closed lower by 216 points to end the day above the 34,900 mark at 34,949. While the broader NSE Nifty ended the day lower by 55 points to end at 10,633.

Among BSE sectoral indices, banking stocks rose the most by 1.7%. This was followed by metal stocks at 1.6%. Bank of India and Jubilant Foodworks were among the major losers.

Top Stocks in Action Today

Mahindra & Mahindra is likely to be in focus today after the company reported a 50% jump in net profit for the March 2018 quarter backed by robust performance of its auto and tractor businesses. Revenues of the farm equipment business surged by 41.8% whereas the automotive segment saw its revenues grow by 19.6% for the quarter.

Idea Cellular is another stock to watch today after the company completed the roll out VoLTE (Voice over LTE) service across nine major markets. With this launch, the telecom operator has reaching 15 circles out of 22 and covering 85% of India's mobile subscriber base. Reportedly, the cost of a VoLTE call is cheaper as compared to traditional calls made on 2G and 3G network. Idea has the second largest presence of VoLTE-based calling service after Reliance Jio.

The Speedbreaker in Maruti's Fast Ride

Passenger car maker, Maruti Suzuki owes the roaring success in the Indian markets to its robust and fuel-efficient car models as also its unmatched country-wide after-sales network. No wonder, the car maker today is the market leader with a 50% market share.

To maintain its leadership position, parent company Suzuki Motor Corp has envisaged investments of US$ 1.5 million in FY19 for the development of future products that include the full range of hybrid vehicles and gasoline engines. Suzuki has outlined a target of selling five million cars in the country by 2030 and would be investing heavily in the Indian subsidiary, Maruti Suzuki.

However, to complement the growth plans, Maruti Suzuki's vendors also need to pull up their socks and expand their capacities. Reportedly, Maruti has more than 420 vendors in the country that collectively need to invest Rs 1.5- 2 trillion to keep pace with the former's growth plans. But small vendors beyond Tier-I are not financially sound to incur such huge investments. And this lack in vendor capacity can pose a major challenge for the company, going ahead.

External Commercial Borrowings to Remain Tepid

To finance its growth plans, India Inc's borrowings are either from banks or through the corporate bond route. External Commercial Borrowings (ECBs) make up a sizeable share of 31% of the corporate bond market. As the country's state-run banks continue to struggle in the bad loan mess, large companies are raising funds at attractive rates from overseas market through ECBs. In FY18, funds raised through ECBs shot up by 26.5% to reach US$ 28.8 billion. A sizeable 33% of the ECBs were used for refinancing old borrowings whereas 18% was used for on lending by banks and financial institutions.

But going ahead, firming interest rates globally along with the volatile rupee are likely to take some sheen off ECBs. Therefore, rating agency CARE, expects ECBs to be between US$ 25 billion and US$ 30 billion in FY19.

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