Sensex Opens Flat Amid Mixed Asian Markets

Mon, 23 Jan 09:30 am

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Asian markets are mixed today. The Nikkei 225 is lower by 1.06% while the Hang Seng is even. The Shanghai Composite is trading up by 0.33%. Stock markets in the US ended their previous session on a firm note.

Meanwhile, Indian share markets have opened the trading day flat with a negative bias. The BSE Sensex is trading lower by 26 points while the NSE Nifty is trading lower by 7 points. The BSE Mid Cap index and BSE Small Cap index have opened the day up by 0.1% & 0.2% respectively. The rupee is trading at 68.09 to the US$. Sectoral indices have opened the day mixed with metal, oil & gas stocks witnessing maximum buying interest. While, IT and healthcare stocks have opened the day in the red.

Auto stocks have opened the day on a mixed note with Escorts and Tata Motors witnessing maximum buying interest. According to an article in a leading financial daily, Mahindra & Mahindra (M&M) will foray into Turkey with the acquisition of a 75.1% equity stake in farm equipment company Hisarlar Makina Sanayi ve Ticaret Anonim Sirketi (Hisarlar). The transaction is expected to close by April 2017 for the consideration of US$ 19 million.

Reportedly, the association will help in growing the farm equipment business (Subscription Required) in Turkey and Europe. The balance shareholding will be with European Bank for Reconstruction and Development (EBRD), 18.7%; and the founding Turkey family, 6.2%.

The move comes ahead of M&M's strategy to globalize aggressively and expand its portfolio to include various new categories of farm machinery. This acquisition is an important milestone in for M&M in its globalization journey.

One must note that, Hisarlar's revenue in 2015 was 208 million Turkish lira, with exports constituting around 35% of sales. Going forward, whether the acquisition further strengthen its current agri-machinery product portfolio in Europe will be the key thing to watch out for.

M&M share price opened the day up by 0.3%.

Moving on to the news from stocks in cement sector. According to an article in The Financial Express, The Competition Commission of India (CCI) has levied a penalty aggregating to Rs 2.06 billion on seven cement companies for 'cartelization' and 'bid rigging' with regard to a tender floated by a central agency of the Government of Haryana (Informant). This penalty has been calculated at 0.3% of the average turnover of the past three preceding financial years.

In this regard, Shree Cement, UltraTech Cement, Jaiprakash Associates, J K Cement, Ambuja Cements, ACC and J K Lakshmi Cement have been penalised for violating competition norms. The CCI noted in its 120-page order that the anti-competitive activities of the companies had led to the cancellation of the tender and forced the Haryana government to start the process afresh.

In August 2016, CCI had slapped a penalty of over Rs 67 billion on 11 cement firms, but the order stayed following an appeal before the Competition Appellate Tribunal.

On the other hand, weak pricing power amid fragile demand scenario and escalating cost levels may put pressure on margins of cement players. A near 75% jump in the prices of petroleum coke, coupled with a similar rise in diesel costs, is likely to affect the margins of cement sector companies in the current financial year.

Valuations Stretched for Indian Cement Companies?

The higher input cost and lower demand are expected to limit the ability of cement manufacturers to pass on the higher prices to the end consumers, thus potentially squeezing margins, the reports noted. Recently, the Rajya Sabha approved the amended Mines and Minerals Development and Regulation (MMDR) Bill, 2016. Rahul Shah, Co-head of Research explains how the amended law will be a big positive for cement companies (subscription required). Here is some of the excerpt from the article:

"Amended law will surely be a big positive for mining, cement, and metal companies. It will enable quicker and smoother transfer of assets among resource-based firms. It will greatly help distressed metal and cement producers sell their production units to companies with stronger balance sheets. And it will be a relief to banks with large exposure to such companies"

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