Sensex Trades Dull; Bank Stocks Lead Losses

Wed, 20 Dec 01:30 pm

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After opening the day in red, share markets in India witnessed choppy trades and are presently trading marginally above the dotted line. Sectoral indices are trading mixed with stocks in the banking sector and stocks in the power sector trading in red. While stocks in the realty sector are trading in green.

The BSE Sensex is up by 35 points (up 0.1%) and the NSE Nifty is trading up by 11 points (up 0.1%). Meanwhile, the BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 1%. The rupee is trading at 64.05 to the US$.

In news from stocks in the steel sector. Tata Steel share price is among the most active stocks in the markets today. The stock was down over 2% as the company's board approved to raise up to Rs 128 billion through rights issue to finance organic and inorganic growth plans.

The company said the board also approved a proposal to expand the capacity of Kalinganagar plant by 5 million tonne per annum (MTPA) to 8 MTPA with a total investment of Rs 235 billion. Tata Steel said the mode of finance for the work will be through a combination of debt and equity and the project configuration and costs includes investments in raw material capacity expansion, upstream and midstream facilities, infrastructure and downstream facilities including a cold rolling mill complex.

The company aims at completing the capacity expansion within 48 months from the date of commencement of construction. The total capacity of Tata Steel India operations following the expansion will be 18 MTPA. At present, Jamshedpur unit has a capacity of 10 MTPA and Kalinganagar has a 3 MTPA plant.

The board also reviewed the financial strategy of the company in the light of organic and inorganic growth strategy of the company and approved financial plan to raise capital for the plan.

The planned capacity expansion could be seen as a boon for spurring growth in the private sector.

The Indian economy is challenged by the abysmal capex in the private sector, and further waned by debt-ridden and cash-strapped sectors such as infrastructure and construction.

Consumer Driven Business Frontline Capex Growth

Consumption driven sectors, on the other hand, were relatively better-off as they witnessed an increase in investment opportunities backed by good demand. Resultantly, the companies operating in this sector recorded double-digit growth in their fixed assets or capex in the past one year. Sectors such as cement, tyres, auto ancillaries, and personal care registered robust double-digit growth in investments in the past one year.

Could the capex by Tata Steel be the beginning of a new capex cycle? We will be sure to keep an eye out.

In news from stocks in the banking sector. IndusInd Bank share price and Bharat Financial Inclusion (BFIL) share price are in focus today after the Competition Commission of India (CCI) approved the proposed amalgamation of the companies.

The Scheme remains subject to the receipt of approval from the Reserve Bank of India and other statutory and regulatory approvals, including the approvals of the Stock Exchanges, SEBI, the National Company Law Tribunal, and the respective shareholders and creditors of BFIL and the Bank.

The deal is seen as a win-win as both companies will gain competitive advantage, realise synergies, and better their financial performance in the medium-to-long term.

Post merger, the new entity will have 4,000 branches and outlets and 16 million customers. The appointed date for the composite scheme is January 1, 2018. BFIL, formerly SKS Microfinance, had a customer base of 68 lakh and loan portfolio of Rs 77 billion as of June 30.

The two financial firms had long been speculated to be interested in a deal. IndusInd Bank is India's sixth-largest private sector lender by assets and has a market value of about $16 billion, while Bharat Financial Inclusion, formerly known as SKS Microfinance Ltd, is valued at more than $2 billion.

The development comes at a time when Bharat Financial is facing stiff competition from banks, both universal and small finance banks.

At the time of writing, IndusInd Bank share price was trading down by 0.2%, while Bharat Financial Inclusion share price was trading up by 0.4%.

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