Back to selling mode

Fri, 29 Jan 09:30 am

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After breaking the jinx yesterday after the selling spree seen over the previous six sessions, Indian markets have started today again on a weak note. The benchmark indices opened way below the breakeven mark and have not managed to make any progress towards the positive territory since then. Other key Asian markets are trading in the red with South Korea (down 1.7%) leading the pack of losers. The US markets closed lower by 1.1% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading in the red with software and auto stocks facing the brunt of selling activity. The BSE-Sensex is trading lower by around 175 points, while the NSE-Nifty is down by about 40 points. Selling is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading lower by 1.9% and 1.6% respectively. The rupee is trading at 46.4 to the US dollar.

Engineering stocks have opened on a weak note. Losers here include Voltas and Cummins India. As per a leading business daily, BHEL has signed a joint venture (JV) deal with Madhya Pradesh Power Generation Company (MPPGCL) for setting up a 1,600 MW supercritical thermal power plant in Khandwa district. Both the companies will hold equal stake in the JV. Eventually, 48% stake will be diluted in favor of other investors. The first 800 MW unit of the project will come in the next 48 months and the other unit within the next 54 months. BHEL will supply the equipments. It may be noted that the company already has two similar JVs, one with the Tamil Nadu Electricity Board and the other with the Karnataka Power Corporation. Together they will set up thermal power projects of around 4,000 MW. In our view, the Madhya Pradesh JV is a continuation of the company's strategy to expand from the 500 MW space into the more challenging area of super-critical technology. In fact, it has entered into tie-ups for sourcing technology for the 800 MW sets with super-critical parameters, suited to Indian conditions, using Indian as well as imported coal.

Energy stocks have opened the day on a negative note. Losers here include MRPL and Gujarat Gas. As per a leading business daily, HPCL plans to invest Rs 250 bn to set up a refinery with an annual capacity of 15 m tonnes a year on the west coast. The exact location could be anywhere between Mumbai and Goa. This project will augment the capacity of the HPCL's existing Mumbai refinery, which cannot be expanded due to space constraints. In fact, the 6.5 m tonne Mumbai refinery is located in a space of 350 acres when it requires 2,000 acres. In our view, the new project makes sense from an operational standpoint. However, we have concerns when it comes to financing the project. The debt equity ratio is planned at 2:1 or 2.5:1. Given the financial difficulties faced by the oil marketing companies on account of under-recoveries on fuels, funding a capital expenditure of this magnitude is going to be a problem.