Power Stocks Out of Favour

Wed, 3 Feb 01:30 pm

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Following a negative trend since the opening of the trading day, the Indian indices have continued to remain under pressure in the post noon trading session. Sectoral indices are trading on a negative note with stocks from the capital goods, power and telecom sectors bearing the maximum brunt.

The BSE Sensex is trading lower by 169 points (down 0.7%) and the NSE Nifty is trading down by 50 points (down 0.7%). The BSE Mid Cap index is trading lower by 1.1% while the BSE Small Cap index is trading down by 1.9%. Gold prices, per 10 grams, are trading at Rs 26,981 levels. Silver price, per kilogram, is trading at Rs 34,910 levels. Crude oil is trading at Rs 2,052 per barrel. The rupee is trading at 68.12 to the US$.

Telecom stocks are trading on a negative note with Himachal Futuristic and Tata Communications witnessing maximum selling pressure. As per a leading financial daily, telecom operator Idea Cellular has launched 4G mobile services in 12 major towns in Orissa. Among the 12 major towns being covered with Idea's 4G are Bhubaneshwar, Cuttack, Baleswar, Jharsuguda, Jatni and Khurda. The company is going to further expand services to 18 major towns in Orissa by March end.

The above development comes in line with the company's plan to expand 4G network in 750 cities across ten telecom circles by June 2016. With the above launch, the company has expanded its 4G service footprint to eight telecom service areas. These service areas include four telecom circles of South India and three telecom circles of North India.

The company's management said that with revised capital guidance for financial year 2016 at Rs 75 billion, the company is accelerating its 4G rollout to cover the length and breadth in the ten telecom circles, including Maharashtra and Goa and North East that are slated for launch before March.

Furthermore, one shall note that Idea Cellular has recently signed an agreement with Videocon Telecommunications for acquiring 'Rights to Use' 1800 MHz spectrum in Gujarat and Uttar Pradesh. After the completion of this transaction, 4G services will be extended to 12 service areas, covering 75% of Idea's revenue base in India.

Presently the stock of Idea Cellular is trading down by nearly 2%.

Stocks in the mining space are trading in the red with Gujarat NRE Coke and Vedanta leading the losses. As per an article in Economic Times, the government has identified 15 blocks to be allotted to central and state PSUs for commercial mining. This comes as progress on the government's plan to open up the coal sector for commercial mining.

The development comes as a major move as the government has for the first time in 40 years opened the coal sector for commercial mining. At present, the same is being undertaken by the central PSU Coal India. With this allotment, the Centre's monopoly over mining and sale of coal will come to an end. Preliminary exploration in most of these blocks through initial drilling has been done while detailed exploration of the blocks will follow once they are allotted to state or central PSUs.

Note that the Cabinet recently gave its approval for allotting coal mines to central and state PSUs for sale of coal, especially to medium, small and cottage industries, under the provisions of the Coal Mines (Special Provisions) Act, 2015. The decision was in line with the government's target of doubling coal production to 1.5 billion tonnes by 2020. Of this it has fixed a target of 1 billion tonne of coal production by Coal India by 2020.

It is believed that commercial mining will lift the domestic production of coal to meet the growing demand of the economy. Moreover, it will reduce India's dependence on coal imports.

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