Middle East crisis hurts stocks

Tue, 22 Feb 09:30 am

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Asian markets have started the day on a weak note. Weighed by tensions in the Middle East, currently all the broader indices are trading in the red. Hong Kong, Japan and China are leading the losers' pack and are down almost 2% each. Following cues from Asia, Indian markets have opened the day in the negative as well. Realty and auto stocks are dragging the markets down. However, energy stocks are seeing buying interest.

The BSE-Sensex is trading lower by around 100 points (0.6%), while the NSE-Nifty is down by around 35 points (0.6%). Mid and small cap stocks are trading in the negative as well, with the BSE Midcap and BSE Small cap indices down by about 0.7% and 0.5% respectively. The rupee is trading at 45.18 to the US dollar.

Telecom stocks are witnessing selling pressure. Idea Cellular and Bharti Airtel are leading the losses. Troubles appear to be brewing for India's 5th largest mobile player, Idea Cellular. If the telecom regulator accepts the recommendations of a top lawyer of the government, then the company may have to surrender its six overlapping licenses and pay a fine of Rs 3 bn. Idea Cellular has six overlapping 2G licenses that it acquired as part of the takeover of Spice Communications in 2008. As per the recommendations, Idea has also violated the merger and acquisition (M&A) norms. Spice had acquired four of the licenses in 2008. As per the M&A rules, no company can sell its stake within three years of obtaining a license. Therefore, the Idea takeover of Spice becomes a violation of this norm. Idea's overlapping licenses that it acquired from Spice have been subject of speculation for everyone. The DoT has sought the help of the law ministry to establish whether these licenses should be cancelled or not.

Idea has long maintained that it is willing to surrender the licenses if it is asked to do so. However, the company maintains that it has not breached any license condition. The company's management stated that Idea has paid the entry fee of Rs 8,300 m on these licenses but has not derived any benefit from them.

Auto stocks have also opened the day on a weak note with TVS Motor, Tata Motors and M&M being the main losers. According to a leading daily, Maruti Suzuki will supply its latest compact car A-Star to Volkswagen AG. The car will undergo some modifications and design changes as per its global market needs. It will then be sold in India and Asian markets under a new brand. The agreement for the same will be inked soon. A-Star would be Suzuki's fifth global model after Swift, Ritz, SX4 and Grand Vitara. Maruti has successfully supplied A-Star to Japanese carmaker Nissan Motors, which re-badges the same car as Pixo for sales through its own network in Europe. Volkswagen holds 20% stake in Maruti's parent company Suzuki.