India tops losers in Asia

Taking cues from peers across Asia, the Indian indices started close to the dotted line and nosedived into the negative territory today. Backed by selling pressure in realty, IT, commodity and FMCG stocks, the benchmark indices in the Indian stock market languished in the red for rest of the session. Lower food inflation numbers too failed to enthuse investors. While the BSE-Sensex closed lower by around 371 points (down 2%), the NSE-Nifty closed lower by around 112 points (down 2%). The BSE-Midcap and BSE-Small cap were not spared either and lost 2% and 3% respectively.

As regards global markets, India topped the losers in Asia while other major Asian indices also closed lower. The European indices have opened in the red. The rupee was trading at Rs 45.68 to the dollar at the time of writing.

With today's decline, the Sensex is now at its lowest point in 14 months. It has lost an estimated 20% since the start of the year. Global macro concerns and the Indian central bank's resolve to tame inflation even if it comes at the cost of economic growth are two of the primary reasons behind the poor performance of the stock market in recent times. Thankfully though, unlike the western world, the problems afflicting India are more cyclical in nature than structural and hence, any tendency on the part of the markets to overreact should be looked upon as an opportunity to buy into the long term India story.

As per a business daily, Hotel Leelaventure signed a pact with Travancore Enterprises to transfer its hotel property in Kerala to a special purpose vehicle (SPV), for a consideration of Rs 5 bn. As per the management the deal is a part of the company's overall debt reduction scheme. It would bring down the debt to equity ratio to 0.7 debt times from the present 1.83 times. The company is also planning to raise capital through a qualified institutional placement (QIP), which will help reduce debt. With the fund raising plan and disposal of the other non-core assets in Pune, Hyderabad and Bangalore, the company plans to bring down its debt to a level of 0.7 times equity within 24 to 36 months.

Hotel Leelaventure officially launched its new 260 room property Delhi property in April 2011. A 332 room property in Chennai is coming up and is expected to be operational by mid 2011. This property will take the room inventory of the company to over 2,197 rooms. More properties for the company are coming up in Agra, Jaipur and Ashtamudi, Kerala. However, FCCBs worth US$ 67 m maturing in April 2012 have been a cause for concern.

Steel Authority of India (SAIL) has raised Rs 4 bn via 10-year bonds at a coupon rate of 9.3%. Recently, SAIL board had accorded in-principle approval for setting up 10 steel processing units (SPU) in different states across the country. The SPUs will be launched in states like Bihar (Bettiah, Mahnar and Gaya), Assam (Guwahati), Uttar Pradesh (Lakhimpur), Jammu and Kashmir (Srinagar) and Himachal Pradesh (Kangra). The company is in the process of raising its capacity by 5.5 m tonnes which is expected to get commissioned towards the end of the financial year 2011-12. Although the prices of steel have remained stable, demand for steel is slowing down due to inflation, higher interest rates and slowdown in Chinese demand.

Indian markets continue to slide
01:30 pm

Indian stock market indices slid deeper into the red due to selling pressure in heavy weights over the last two hours of trade. IT and banking stocks are leading the pack of losers, while realty and FMCG stocks are the biggest gainers.

The BSE-Sensex is down by 236 points and NSE-Nifty is down by 73 points. BSE Midcap and BSE Small cap indices are down by 1.5% and 1.6% respectively. The rupee is trading at 45.61 to the US dollar.

Power stocks are trading in the red with the key losers being Reliance Infrastructure and Jai Prakash Power. As per a leading financial daily, Reliance Infrastructure has hinted that it may not allow Tata Power to use its transmission network to supply electricity in suburban Mumbai. Tata Power is a rival of Reliance Infra in the power sector. The former has around eight lakh customers in the metropolis and it uses Reliance Infrastructure's 400 sq km long transmission network to supply electricity in the area. It is to be noted that the latter has also got a distribution licence in the same area and it serves 28 lakh customers. It was recently granted distribution and transmission licences by Maharashtra power regulator which were expiring on August 15, for a period of 25 years. Both the stocks were trading in the red.

Auto stocks are trading in the red with the key losers being Tata Motors and TVS Motor. Maruti Suzuki has launched an upgraded version of its popular 'Swift'. The new version is in the aggressive price range of Rs 4.22-6.38 lakh, cheaper than rivals Volkswagen Polo and Hyundai i20. It is lighter by 30 kg and offers better fuel efficiency than the phased out version. The company expects the new version to increase its sales. It has invested Rs 5.5 bn in the new car. It is important to note here that new car purchases in the auto market fell 16% in July versus 26% drop in company car sales volumes. The management has said that it has already received orders for 50,000 new Swifts from across the country. Expecting a healthy order flow, it has raised production of the new car at its Manesar plant from 12,000 to 18,000 units a month. The stock was trading in the red.

Indian markets lose further ground
11:30 am

Indian stock market indices continued to extend losses led by persistent selling across index heavyweights during the previous two hours of trade. IT and banking stocks are leading the downfall, while realty and FMCG stocks are the biggest gainers.

The BSE-Sensex is down by 187 points and NSE-Nifty is down by 58 points. BSE-Midcap and BSE-Small cap indices are down by 0.86% and 0.94% respectively. The rupee is trading at 45.62 to the US dollar.

Aluminium stocks are trading in the red with the key losers being Hindalco and Nalco. Hindalco Industries may see a rise in production costs in its upcoming aluminium project in Mahan in Madhya Pradesh. This is because the Mahan coal block from where the company is supposed to draw coal for its captive power plant has run into environment problems. The Mahan coal block is under no go area and the matter has been referred to the group of ministers by the ministry of environment and forest. The company is building a 359 kilo ton per annum (ktpa) aluminium smelter and 750 MW power plant for captive purposes. It is essential for the company to receive green clearance otherwise the cost of the project will increase substantially. This is because alumina and power comprise close to 70% of production cost of aluminium. Without captive source there is no way that Hindalco could produce low cost aluminium.

Power stocks are trading in the green. Suzlon Energy and GMR Infrastructure Ltd are the biggest gainers while Adani Power and Lanco Infratech are the biggest losers. According to a leading financial daily, Power Grid Corporation, India's largest state run power transmission utility company is planning to raise around Rs 10 bn via bonds. The company will issue bonds with maturity in 2030 with staggered redemptions from 2016. The bonds are rated 'AAA/Stable' by CRISIL and 'LAAA' by ICRA. The coupon rate will be finalized once the company meets with various bankers. The issue is likely to open on August 23 and close on August 25. It must be noted that the company has planned capex of Rs 185 bn for FY12 (55% above FY11 capex) and this bond issue could partly help it funds the same.

Indian stock markets open weak
09:30 am

Asian stock markets have opened the day on a mixed note. Stock markets in Hong Kong (down 0.2%), South Korea (down 1.9%), Nikkei (down 0.4%), and China (down 0.5%) are trading in the red whereas Indonesia (up 0.8%) is trading in the green. The Indian stock market have opened the day on a weak note. Realty and IT stocks are trading weak. However, stocks in the Consumer Durables and FMCG space are witnessing buying interest.

The BSE-Sensex is trading lower by around 12 points (0.1%) and the NSE-Nifty is down by around 6 points (0.1%). However, midcap and small cap stocks are trading in the green, with the BSE-Midcap and BSE-Small cap indices up by 0.1% and 0.2% respectively. The rupee is trading at 45.30 to the US dollar.

Steel stocks have opened the day on a mixed note with Tata Steel and Bhushan Steel leading the losses while SAIL and JSW Steel leading the gains. Steel major, SAIL (Steel Authority of India Ltd) is planning to go ahead with a special purpose vehicle (SPV) route for the revival of Sindri unit of Fertiliser Corporation of India (FCI). The company has planned three such SPVs and has roped in different strategic partners. The SPVs will be used to set up a steel plant, a fertilizer plant and a power plant. For this, the existing FCI unit at Sindri will be dismantled. SAIL will have a stake of 51% in the SPVs. SAIL has recently received an approval on its proposal of SPVs from the Cabinet Committee on Economic Affairs. The total estimated investment is around Rs 350 bn.

Engineering stocks have opened the day on a mixed note with BEML and Bharat Electric leading the losses while L&T and Punj Lloyd in the green. Engineering giant Larsen & Toubro (L&T) is gearing up to drive its growth through international markets. The company currently derives 91% of its Rs 1.36 trillion order book from the domestic market. However, given the constraints in the country and the problems such as corruption, the company is looking forward to increasing the share of exports by at least 10% points. It expects order inflow to pace up from West Asia for hydrocarbon, power transmission and distribution and infrastructure projects. L&T has reaffirmed its guidance of 25% for revenue growth and 15-20% for order inflow during the financial year 2011-12.

Who will receive this 'golden ticket'?

The Tata Group of companies is almost omnipresent in this country. They make everything, right from salt to software. But their dream of participating in the Indian banking industry is still far from being a reality.

In his budget address, Finance Minister, Mr Pranab Mukerjee, spoke about awarding banking licenses to certain entities. This list included non-banking finance companies (NBFCs) as well as industrial houses. However, the RBI as usual has been conservative in its stance. The central bank and finance ministry have now come to a conclusion that big corporate houses should not to be allowed to enter the business at this stage.

Now, along with the Tatas, the hopes of groups like Mahindra & Mahindra, Anil Dhirubhai Ambani Group, AV Birla Group and L&T have also been dashed. The main reason behind the RBIs decision was the apparent risk to the bank's integrity from the groups' other business interests. The need to maintain domestic stability, especially in times of crisis was also a factor. But, with this even other aspirants like Indiabulls, Shriram Finance, Religare and SREI Infra's prospects are uncertain. They may not receive this coveted license on account of cross-holdings in group firms.

Yes Bank was the only bank to receive a greenfield banking license in India over the past 16 years. Now, according to a leading business daily, a maximum of four banks licenses will join its league. These new banks will be promoted by pure-play NBFCs and would need to meet strict eligibility criteria. The initial promoter holding would need to be 40%. The aggregate foreign holding limit would be capped at 49%. The minimum paid up capital would also be higher at Rs 5 bn, versus Rs 3 bn for existing banks. These new banks will also have to open certain number of branches in rural and semi-urban areas. This will help boost financial inclusion in the country.

We agree with the central bank that business houses should not be awarded licenses as of now. It would be better to wait until various teething problems are solved. With corruption and scams rampant in the country, even the slightest of a conflict of interest appears suspicious.

Having a higher capital base and a limit on promoter holding will also ensure that the parties are serious about getting into the business for the long haul. A slow and steady approach towards financial inclusion, rather than a sudden move will be beneficial for the sector over the long term. But, for the receivers of this 'golden ticket' it would be a wonderful opportunity to tap into the soul of the economy. They will benefit from accessing low cost deposits, increasing domestic presence, and be able to improve shareholder value. When these new licenses are awarded, it will be one of the biggest reforms in the financial space post liberalisation.