Rail Budget Fails to Cheer Markets

Thu, 25 Feb Closing

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After trading near the dotted line during the morning session, Indian indices fell below the dotted line even as a 21% hike in capital outlay announced in the rail budget 2016 failed to enthuse investors. Amongst other things, a weak Chinese markets took a toll on the domestic sentiment. At the closing bell, BSE-Sensex finished lower by 113 points, while NSE- Nifty closed lower by 48 points. Mid-Caps and Small Caps continued to slide lower as S&P BSE Mid cap and S&P Small Cap finished with losses of 1.1% and 0.9% respectively. Barring metal and healthcare sector, all the sectoral indices finished in red with power and realty stocks faring the worst.

Asian markets slipped in today's trade even as crude oil prices seesawed and Chinese shares fell. The Shanghai Composite and the Hang Seng fell 6.41% and 1.65% respectively. Meanwhile, the Nikkei 225 gained 1.41%. European markets are broadly higher today with shares in London leading the region. The FTSE 100 is up 1.80% while France's CAC 40 is up 1.53% and Germany's DAX is up 0.83%.

Oil prices retreated again in Asian trading hours, with U.S. crude dropping 0.84% to $31.88 a barrel, after settling up 0.88% in overnight trade. The rupee was trading at Rs 68.60 against the US$ in the afternoon session.

Selling Activity was witnessed across majority of the automobile stocks with Tata Motors DVR and Tata Motors bearing majority of the brunt. However, Mahindra & Mahindra (M&M) and Mahindra Scooters bucked this trend and finished in green.

M&M is reportedly planning to invest around Rs 10 billion in developing petrol engines. The company is working with SsangYong Motor Company to jointly develop a 2.2-litre petrol engine, which is expected to be used in the Scorpio and XUV500. Additionally, it is developing 1.5-litre & 1.6-litre engines in-house. The development process of new petrol engines is planned to be completed in the next two to three years. Apart from joint engine development, the company is also reviewing opportunities to share platforms with SMC.

The Supreme Court in December 2015 suspended registration of vehicles strapped with diesel engines bigger than 2.0 litres (Subscription Required) in the National Capital Region (NCR) till March 2016, prompting M&M to intensify focus on development of petrol engines. M&M launched its flagship models, Scorpio and the XUV 500 with a downsized 1.99-litre mHawk diesel engine later in January to tide over the crisis in the NCR. Reportedly, Scorpio and XUV accounts for almost 40% of M&M's monthly volumes of 20,000 units and almost 4% of that comes from the region. The script of M&M finished the day on an optimistic note (up 0.8%) on the BSE.

On a separate note, Royal Enfield, a subsidiary of Eicher Motors has launched retail operations in Thailand with the opening of its first store in the country. Royal Enfield has been expanding its global retail footprint across the UK, Europe, Latin America, the Middle- East and now in South East Asia as part of its strategy to become a leader in global mid-sized motorcycle segment. It had recently launched in Indonesia.

Shares of companies linked to the rail sector racked up losses, led by BEML, Titagarh Wagons and Kalindee Rail, which declined by up to over 9%.

According to a leading financial daily, Larsen & Toubro's (L&T) fully owned subsidiary - L&T Hydrocarbon Engineering (LTHE), has signed a long-term agreement with McDermott International focused on subsea projects in deep-water segment emerging on the east coast of India. Under the agreement, LTHE and McDermott will develop a cost-effective approach which will utilize LTHE's state-of-the-art, strategically located Kattupalli facility near Chennai. It will be used for fabrication and setting up of a local spool base in India.

LTHE and McDermott have successfully cooperated on several other projects in India previously and this agreement further strengthens the relationship between the two companies. The agreement builds on successful collaboration between McDermott and LTHE which resulted in the recent Rs 24.5 billion order to the Consortium of McDermott and LTHE for Vashishta Deepwater Greenfield development.

As of the September 2015 quarter, L&T had a total of Rs 983 billion of debt. Meanwhile, it had only about Rs 482 billion of equity financing. In a recent edition of The 5 Minute WrapUp Premium, we have talked about the equity and debt numbers of L&T's various business lines (Subscription Required) and whether the company is being too aggressive with leverage (Subscription Required).

Meanwhile, State-owned BHEL has successfully commissioned a 40-mw hydro-electric generating unit in West Bengal. With this, Bharat Heavy Electricals Ltd (BHEL) has commissioned hydro sets totaling 770 mw in the current financial year.

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