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Indian Indices Trade in Red; PSU Stocks Drag
Fri, 23 Jun 01:30 pm

After opening the day marginally lower, share markets in India have continued the downtrend and are currently trading below the dotted line. All sectoral indices are trading on a negative note with stocks in the realty sector and stocks in the PSU sector leading the losses.

The BSE Sensex is trading down by 86 points (down 0.3%), and the NSE Nifty is trading down by 36 points (down 0.4%). Meanwhile, the BSE Mid Cap index is trading down by 0.8%, while the BSE Small Cap index is trading down by 1.4% The rupee is trading at 64.50 to the US$.

In news from stocks in the steel sector. Tata Steel share price was trading lower today after the steel major sold its entire stake in group company Tata Motors through a block deal today.

The steelmaker had already informed the bourses last week that it would be selling its stake of 83.6 million equity shares in the automaker to parent Tata Sons on or after 23 June.

Tata Steel sold approximately 2.9% stake in Tata Motors on the BSE at Rs 453.1 apiece bringing the entire transaction to Rs 37.8 billion.

Tatas High on Control, Low on Equity Stake

The move comes after the Tata Group has reportedly decided to bring down cross-holdings in the group so that these companies can focus more on their core businesses as well as unlock shareholder value.

The inter-group transfer will take Tata Sons' voting rights in Tata Motors to more than 30%.

According to reports, various Tata group companies own shares worth tens of thousands of crores in each other and this was one of the charges that the ousted chairman Cyrus Mistry had made against Tata Sons management.

As per a leading financial daily, Tata Steel plans to use the proceeds of the sale to pare some of its Rs 700 billion debt.

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The steelmaker has been in talks with Germany's Thyssenkrupp AG and others for a joint venture in Europe since last year, as part of its strategy to trim losses amid a global glut of steel. It recently made a Rs 36.2 billion one-time settlement for a pension scheme to turn its U.K. operations viable.

At the time of writing, Tata Steel share price was trading down by 2%, while Tata Motors share price was trading lower by 1.6%.

Moving on to news from the telecom sector. State Bank of India (SBI) has expressed doubts on the ability of telecom companies to service their loans, and has sought the provision of spectrum as a collateral for its loans.

Under the current rules, in case of a default banks are not allowed to take over spectrum allotted to telecom companies. However, banks have been demanding a change in rules to take on spectrum as collateral and then take over it in case of a default.

SBI, in its rationale explained that the EBITDA of the telecom industry gone down from Rs 750 billion two years ago to Rs 450 billion now, putting a question mark on the ability of companies to service their debt, which is estimated at Rs 4 trillion.

The bank's officials said they are unable to make any estimates about revenues of telcos as they are going down rapidly after the launch of services by Reliance Jio with disruptive tariffs and lifetime free voice. They sought easing of levies and taxes on telcos.

The entry of Reliance Jio and the fierce tariff war it has triggered has set off brisk activity in the industry for fundraising and consolidation, as the incumbents look for ways and means to fend off the competition.

This has led them to take on additional debt for the acquisitions.

The way things look right now in the telecom sector, SBI's concern seems valid. It would be prudent to keep an eye on the debt levels of the sector.

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Feb 23, 2018 (Close)