IT & Metal Stocks Under Pressure

Mon, 29 Aug 01:30 pm

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After opening the day on a flat note, the Indian stock markets continue to trade near the dotted line amid mixed global markets. Sectoral indices are trading on a mixed note with stocks from the IT and metal sectors leading the losses. <>Auto and capital goods stocks are leading the gains.

The >NSE Nifty is trading higher by 1 point. The BSE Small Cap index is trading up by 0.1% while, the BSE Mid Cap index is also trading higher by 0.1%. The rupee is trading at 67.17 to the US$.

Shares of Larsen & Toubro (L&T) are trading on an encouraging note (up 1.2%) after it was reported that the company is planning to scale-up its business in Southeast Asia and Africa in a bid to cover up for losses in West Asia. Overseas orders now account for a third of the company's order inflow, up from a share of 10-12% a few years ago.

The company spread its presence in West Asia with the aim to reduce its exposure to the domestic market. However, it has faced challenges in West Asia, incurring huge losses on hydrocarbon projects while the fall in crude oil prices has led to drying of the order pipeline.

L&T has identified new markets including Tanzania, Kenya, Ethiopia, Uganda, Mozambique and Algeria in Africa and Malaysia, Vietnam, Indonesia in Southeast Asia.

Meanwhile, L&T reportedly plans to double its annual revenue (Subscription Rqeuired) to Rs 2 trillion by 2021. This is to be done without compromising on its margins. The company also plans to make its order inflow in excess of Rs 2.5 trillion a year in the same period.

The company is expecting to complete the restructuring of its arm IDPL, engaged in infrastructure projects, by next March. The company recently sold the general insurance arm and the asset-heavy Kattupalli port.

Moving on to news from mining sector. According to a leading financial daily, Coal India (CIL) has received board's approval to ink Memorandum of Understanding with African Exploration Mining & Finance Corporation SOC (AEMFC), owned by the South African government, for acquisition of coal mines in that country.

Moreover, the company is considering to ink pact with a mining company owned by the government of South Africa to jointly undertake identification, acquisition and operation of coal assets in South Africa.

The company's shareholders have also approved buyback of 108.9 million shares worth Rs 36.5 billion. The Finance Ministry is pushing for buyback of shares by CPSEs. This is being done for two purposes to generate cash for the government and help push up the valuation for any divestment.

As per the reports, in the last one year, CIL has seen depletion in its cash reserve by 18%, or Rs 87 billion as on March 2016. The government has set a disinvestment target of Rs 565 billion for 2016-17. Of this, Rs 360 billion is expected to come from minority stake sales.

CIL board will deliberate on cash outgo due to the buyback and its long-term investment plan to meet the Coal Ministry's goal of 1 billion tonne output by 2020. Coal India is presently trading down by 0.4% on the BSE.

After much deliberation and delay, the Mines and Minerals (Development and Regulation) Act, 1957 had been recently revised and Rajya Sabha approved the amended Mines and Minerals Development and Regulation (MMDR) Bill, 2016. In a recent edition of The 5 Minute WrapUp Premium, we looked at the impact of the Act on various mining and metal companies (Subscription Required).

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