After starting today's session on a negative note, Indian indices have failed to recover earlier losses and continue to trade in the red. However, other key Asian markets are trading mixed. Currently, heavyweights in the Sensex are trading weak with stocks from the capital goods and consumer durables space witnessing huge selling pressure.
Currently, the BSE-Sensex is trading down by around 103 points, while the NSE-Nifty is down by about 41 points. Buying interest amongst the mid and small cap stocks is muted as well with the BSE Midcap and BSE Small cap indices trading lower by 0.9% and 1.1% respectively.
Metal stocks are trading weak with Adhunik Metaliks and Jindal Steel & Power leading the pack of losers. However, Bhushan Steel is trading strong. Tata Steel is planning to raise up to Rs 70 bn through an FPO to expand its capacity by almost three times from 6.8 m tonnes (MT), currently. The offering will be in the form of warrants or shares or a mix of both. Out of the total issue size roughly Rs 11 bn is expected to be raised from FIIs from overseas markets. Post the FPO, Tata Sons' stake in the company is likely to come down to 15-18% from 32%.
We believe the fund raising is expected to culminate fast as Tata Steel plans to ramp up its expansion plans due to a virtual capacity addition race amongst the industry players. The company plans to set up a brownfield plant in Jamshedpur at an investment of around Rs 150 bn which is expected to be completed by March 2012. In addition, the company has also planned two greenfield capacities in Orissa and Chattisgarh. It may be noted that majority of the steel companies have lined up major expansion plans to meet incremental demand. For instance, both SAIL and JSW Steel plan to increase their capacity to 60 MT and 34 MT, respectively by 2020. With massive greenfield projects of foreign companies like Posco and Arcelor being held up for environmental issues, the capacity expansion spree amongst domestic companies presents first mover advantage to them.
Power stocks are trading mixed with Reliance Infra and Power Grid Corporation trading firm and GVK Power & Infra and Coal India trading weak. As per a leading financial daily, Power Grid Corporation is planning to raise about Rs 100 bn in 2011-12 through the issue of domestic bonds. These funds would be raised to meet the company's expansion needs. Power Grid has planned a capex of Rs 180 bn for 2011-12. This is an increase of 50% over the amount spent on capex in 2010-11. The company is also expected to go for a follow on public offer (FPO) to raise funds. It may be noted that in November last year, Power Grid had raised about Rs 75 bn through an FPO, of which half went to the government for divesting 10% of its stake in the company.
Power Grid owns and operates around 72,000 circuit km of transmission lines and transmits 45% of the total power generated in the country. It also owns 150,000 transmission towers across the country. About 70% of these towers are located in semi-urban and rural areas. With India planning to add 78,700 MW of generation capacity during the 11th Plan and another 100,000 MW in the 12th Plan, huge investment will be required for transmission and distribution of electricity.