Sensex Opens 200 Points Down on North Korea Tensions; Metal & Bank Stocks Fall

Fri, 22 Sep 09:30 am

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Majority of Asian stock markets are lower today as Chinese and Hong Kong shares fall after a downgrade on the China's credit rating. The Shanghai Composite is off 0.43% while the Hang Seng is down 0.74%. The Nikkei 225 is trading down by 0.29%. US stock indexes slipped on Thursday as investors braced for a third interest rate hike this year and the United States ordered new sanctions against North Korea.

Back home, share markets in India have opened the day deep in red tracking global share markets. The BSE Sensex is trading lower by 200 points while the NSE Nifty is trading lower by 70 points. The BSE Mid Cap and BSE Small Cap index opened the day down by 0.7% & 0.6% respectively.

Except, healthcare stocks, all sectoral indices have opened the day in red with stocks from metal sector and banking sector witnessing maximum selling pressure. The rupee is trading at 64.53 to the US$.

In the latest development, as per the Interim Economic Outlook report released by Organisation for Economic Co-operation and Development (OECD), India's GDP growth rate will overtake China's in the next financial year.

The OECD report maintains that the economy will regain its momentum and achieve a growth of 7.2% in 2018, overtaking China that will see a growth rate of 6.6% during the same period.

The Paris-based group of 35 advanced and emerging countries cut its forecast for India's growth to 7.2% in FY19 from 7.7% estimated earlier.

In the longer run, the GST is expected to boost investment, productivity and growth, the reports stated. The GST came into effect from 1 July while demonetisation happened in November last year.

Notably, as per the official government data, the Indian economy grew 5.7% in April-June which was sharply lower than last year's 7.9% expansion in the same quarter.

With regard to the global economy, the OECD said growth this year is projected to pick up to around 3.5% and rise to 3.7% in 2018. Growth is seen higher in the euro area, Russia, Japan and Canada.

The forecast for the US is unchanged at 2.1% for 2017 and 2.4% for 2018. The group warned against complacency in the face of stronger short-term momentum.

Moving on to the news from telecom sector. As per an article in a leading financial daily, Bharti Airtel got shareholders' approval on Thursday for merging Telenor India with itself, a deal which will boost its spectrum footprint.

Reportedly, the scheme of amalgamation was passed with an overwhelming 99.8% majority.

Notably, the two companies, in February 2017, had signed an agreement for merger under which the Sunil Mittal-led operator was to acquire Telenor India's operations in seven circles - Andhra Pradesh, Bihar, Maharashtra, Gujarat, UP (East), UP (West) and Assam.

The deal will enable Airtel to further bolster its spectrum footprint in these seven circles, with the addition of 43.4 MHz spectrum in the 1800 MHz band - widely known as 2G spectrum, but it is now being used for 4G services as well.

The proposed acquisition would include transfer of all of Telenor India's assets and customers, augmenting Airtel's overall customer base and network.

Telecom has been buzzing the last few days. Smaller players in the sector were already feeling the heat after Reliance Jio's entry in to this space. As the competition intensified, the screams of consolidation grew louder.

However, Tanushree Banerjee, co-head of Research is of the opinion that It's a safe bet that post-consolidation, these firms will be in a good position to compete with Jio (subscription required). Here's an excerpt of what she wrote:

• "Tariffs will keep falling down and data usage will keep rising fast.It's important to keep in mind these firms already have well developed networks. Jio's network, however, is still work in progress."

One shall note that, the whole telecom business has been an underwhelming story so far. While the telecom subscriber base has increased from 300 million in 2008 to 1.2 billion in 2017, investors have little to cheer.

The BSE Sensex has gone up 3.25 times in nine years, but the BSE Telecom Index has not moved an inch from its levels of 2008.

Telecom Sector: A decade of Underperformance

Telecom companies are straddled with high debt, intense competition, and lack of pricing power. High spectrum costs and regulatory issues have hampered the sector.

While consumers have benefited from low costs and new players fighting for their share, investors have suffered.

Going forward, whether the situation will change in the future will be the key thing to watch out for.

Bharti Airtel share price opened down by 0.1%.

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