Indian Indices Trade in Red; Telecom Stocks Under Pressure

Wed, 20 Sep 01:30 pm

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After opening the day marginally higher, share markets in India witnessed volatile trading activity are currently trading below the dotted line. Sectoral indices are trading on a mixed note with stocks in the auto sector and stocks in the telecom sector leading the losses, while stocks in the capital goods sector and stocks in the pharma sector are trading in green.

The BSE Sensex is trading down by 12 points (down 0.1%), and the NSE Nifty is trading down by 11 points (down 0.1%). Meanwhile, the BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading down by 0.1% The rupee is trading at 64.33to the US$.

In news from stocks in the steel sector. Tata Steel share price is in top focus today after Germany's Thyssenkrupp and Tata Steel struck a preliminary deal on Wednesday to merge their European steel operations.

The merger would be a 50:50 joint venture between the two companies and would make the merged entity Europe's second largest steel operation after ArcelorMittal.

The new company, to be named Thyssenkrupp Tata Steel, would be headquartered in or near Amsterdam, Thyssenkrupp said in a statement on Wednesday after the two companies signed a memorandum of understanding (MoU).

The deal will not involve any cash and both groups would contribute debt and liabilities to achieve an equal shareholding and remain long-term investors.

The companies said they need to consolidate to address overcapacity in the European steel market, which faces cheap imports from China and elsewhere, subdued demand for construction and inefficient legacy plants.

Tata Steel last month reached a landmark deal that will allow it to reduce 15 billion pounds ($20 billion) in pension liabilities, long seen as the main hurdle in talks between the companies, which have lasted more than a year-and-a-half.

The MoU will be followed by negotiations about the details of the transactions as well as due diligence before a joint venture contract can be signed at the beginning of 2018. The deal would also require the approval of Thyssenkrupp's supervisory board and Tata Steel's board of directors as well as that of the European Commission.

At the time of writing, Tata Steel share price was trading up by 0.8%.

Moving on to news from stocks in the telecom sector. Telceom stocks are among the most active in today's trade after the Telecom Regulatory Authority of India (TRAI) cut interconnection usage charges (IUC) levied by telecom firms by 57%. The telecom regulator also said that the IUC will be abolished in early 2020.

Mobile companies currently charge 14 paise a minute for allowing a domestic call from a rival operator to terminate on their network. This charge, called Interconnection Usage Charges or IUC, will be brought down to six paise per minute from 1 October 2017.

IUC is levied by a telecom operator on incoming calls from other networks and the charges are passed on to subscribers.

Debt Levels of Telecom Players on an Uptrend

Incumbents had earlier argued that that any move to lower the IUCs would turn the entire telecom industry sick barring Reliance Jio.

The current cut is considered as a negative for large incumbents like Idea Cellular and Bharti Airtel who stand to lose a large chunk of this revenue stream, which contributes about 14-18% of their operating profits.

Meanwhile, new entrant Reliance Jio could benefit the most from the rate cut.

With the latest cut in charges, it will lead to additional burden for incumbents like Idea Cellular and Bharti Airtel, which are already reeling under significant amounts of debt.

At the time of writing, Bharti Airtel share price was trading up by 0.3% after dropping in early trade, while Idea Cellular share price was trading down by 3.1%.

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