Indian Indices Trade on a Negative Note; FMCG Stocks Witness Losses

Wed, 6 Sep 11:30 am

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After opening the day in the red, Indian share markets have continued to trade on a negative note. Sectoral indices are trading on a mixed note with stocks from the realty sector and the FMCG sector witnessing maximum selling pressure. Metal sector is witnessing buying interest.

The BSE Sensex is trading down 171 points (down 0.5%) and the NSE Nifty is trading down 43 points (down 0.4%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading up by 0.2%. The rupee is trading at 64.21 to the US$.

In the news from IPO space, ICICI Lombard General Insurance Company has got Indian market regulator's nod for its Rs 60 billion IPO.

The company is a joint venture between ICICI Bank and Canada-based Fairfax Financial Holdings. It had filed its draft prospectus in July for the public issue comprising Offer for Sale (OFS) of shares by existing shareholders, accounting for 19% stake.

The IPO would be the first by a general insurer in India.

One shall note that five insurance company offerings are expected to raise a whopping Rs 400 billion collectively by the end of the year. State-owned General Insurance Co of India and New India Assurance Ltd, which have both filed their draft red herring prospectus (DHRP) with the regulators, are expected to raise a mammoth Rs 100 billion each. Similar offerings from SBI Life Insurance, ICICI Lombard General Insurance, and HDFC Standard Life Insurance are set to raise around Rs 70 billion, Rs 50 billion, and Rs 75 billion, respectively.

These five offerings themselves are set to make 2017 the biggest IPO year ever - even bigger than 2010, when 64 companies raised a collective Rs 375 billion through their IPOs.

2017 Set to be Record Year for IPOs

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Speaking of IPOs, two companies viz. Bharat Road Network and Dixon Technologies (India) Ltd are bringing their IPOs to the financial market today. The initial public offerings of both these companies will be open for subscription from 6th-8th September.

Dixon Technologies (India) expects to raise Rs 6 billion from its IPO today. The company plans to spend the proceeds on capacity expansion and debt repayment. It plans to offer about 33,93,425 equity shares of face value of Rs 10 each amounting to Rs 5.99 billion on the upper price band.

Further, it has raised Rs 1.8 billion by selling 1.02 million shares to institutional investors.

Meanwhile, Bharat Road Network also opened its IPO for subscription today aiming to garner around Rs 6 billion.

At least 75% of the issue will be allotted on a proportionate basis to qualified institutional buyers, of which the company may allocate up to 60% of the QIB portion to anchor investors, on a discretionary basis.

Do these companies have sound business models? Are they leaving enough money on the table for investors?

We have released our IPO notes for both the above IPOs. You can access the same in our IPO section.

In the news from power sector, as per an article in the Economic Times, the government is formulating a novel scheme to revive stressed power assets by inviting competitive bids from them to supply electricity for five years.

This would be the government's biggest plan to support 34 stressed plants with a capacity of 40,000 megawatts (MW).

Accordingly, the power ministry is considering pooling electricity demand of various states and call tariff- based bids. Once the demand is finalised, the contracts will be passed on to the states. Guidelines for the scheme are likely to be issued in a month.

The above move will mean cheaper electricity for state utilities as well as help stranded plants to start operation and repay debt.

The proposal also seeks to comfort state-owned discoms by waiving fixed cost payment when they do not offtake power from such plants.

One shall note that the implementation of UDAY has caused states to raise power tariffs. A hike in power tariffs does not bode well for the ruling political party. So for a long time, DISCOMs, usually a state government undertaking, did not hike tariffs. However, the UDAY scheme states that, if the DISCOMs continue to bleed after FY17, the state government concerned would have to take on the DISCOMs operating losses.

With this threat, the state governments have become more willing to hike tariffs. This has led to a significant improvement in DISCOM finances.

For example, DISCOMs in Rajasthan, Tamil Nadu, and Uttar Pradesh have been able to reduce their losses by 54%, 35%, and 14% in FY17 as compared to a year ago.

Improved DISCOM health could prove to be a major boon to the power sector and could go a long way in helping the government achieve its goal of power for all by 2022.

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