Sensex Continues Slump; Consumer Durables Stocks Lose Most

Tue, 6 Feb 01:30 pm

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After opening the day on a negative note, Indian share markets have continued the downtrend and are currently trading in red. All sectoral indices are trading in red, with stocks in the consumer durables sector and stocks in the realty sector witnessing maximum selling pressure.

The BSE Sensex is trading down by 780 points (down 2.4%) and the NSE Nifty is trading down 265 points (down 2.5%). Meanwhile, the BSE Mid Cap index is trading down by 2.3%, while the BSE Small Cap index is trading down by 2.9%. The rupee is trading at 64.11 to the US$.

In news about the economy. Global banking and investment firm, Goldman Sachs in a report said that budgeted fiscal deficit is in line with expectations but there are some risks of slippage in financial year 2018-19, unless economic activities formalize at a rapid pace.

According to the global financial services major, while the budgeted deficit is in line with expectations, the revenue targets are on the optimistic side, particularly on recently- introduced GST tax revenue growth.

The government outlined a fiscal deficit target of 3.3 per cent of GDP in 2018-19 as against a revised estimate of 3.5 per cent in 2017-18, indicating some fiscal consolidation.

Note that the government missed its fiscal deficit target for FY18 by 30 basis points. Against a target of 3.2%, the government managed to keep fiscal deficit at 3.5% in FY18. It has also outlined the projected fiscal deficit target of 3.3% in FY19 in its budget.

Steady Decline in Fiscal Deficit Over the Years

Maintaining this deficit target in FY19 won't be easy.

In the past, the government has relied on reducing expenditure to keep the fiscal deficit in check.

For the next year, the government is banking on earning much more than it has in the past. It expects a major portion of the revenue to be collected through GST tax collections. Also, the recent rise in crude oil prices has cast a doubt over how much the government will be to curb its spending. It also needs to revive the economy from the shock of Notebandi.

The dual pressure of increasing expenditure and lower inflows makes this FY19 deficit target an uphill challenge.

Moving on to news from stocks in the steel sector. JSW Steel and Tata Steel share price is in focus today. According to a leading financial daily, JSW Steel, Tata Steel and a group of employees along with a private equity firm have submitted bids for the bankrupt Bhushan Steel.

The bids will be open to examination today.

Bhushan Steel, which involves a Rs 440 billion default, is the biggest bankruptcy to go under the hammer thus far after the Reserve Bank of India and the government pushed banks to clean up the bad loan mess through the Insolvency and Bankruptcy Code (IBC). As many as 451 cases with an exposure of Rs 1.28 trillion are pending in the bankruptcy courts. Essar Steel and Electrosteel Steels are the other big metal companies undergoing the bankruptcy process. Bidding for Bhushan has witnessed some twists in the past month with many global giants showing initial interest then withdrawing from the race.

JSW Steel had submitted its bid along with Piramal Enterprises' distressed asset fund after Japanese company JFE Steel Corp bowed out at the last moment.

Bhushan Steel has an annual steel capacity of 5 million tonnes. The resolution professional has set the liquidation value at Rs 150 billion, below which no bid will be accepted. Most bids are expected to be in the Rs 250-300 billion range.

It would be interesting to see who ends up with the stressed steelmaker's assets and how they are utilized.

At the time of writing, Tata Steel share price was trading down by 0.5% and JSW Steel share price was trading down by 2.9%.

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