Indian Markets Trade Near the Dotted Line

Fri, 4 Mar 11:30 am

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After opening the day on a flattish note, the Indian Markets witnessed choppy trades and are presently trading near the dotted line. Sectoral indices are trading on a positive note with stocks from the metal, power and realty sectors leading the gains.

The BSE Sensex is trading up by 18 points (up 0.1%) and the NSE Nifty is trading up by 4 points (up 0.1%). The BSE Mid Cap index and the BSE Small Cap index are trading in the green, up by 0.9% and 0.8% respectively. The rupee is trading at 67.28 to the US$.

Mining stocks are trading on a positive note with Hindustan Zinc and Metals and Minerals Trading Corporation (MMTC) witnessing maximum buying interest. As per a leading financial daily, Coal India has been forced to temporarily stop production at several mines and suspend shifts in others. This is because there are no takers for their stock due to surplus position at all thermal power plants in the country.

The coal stocks now stand at 84 million tonnes (MT), with 48 MT at various Coal India mines and another 36 MT at power plants.

The company has been officially asked to stop production as there's a limit on the volume of coal that can be stores at any single location. The stock is so huge that transportation is becoming an issue. Further, with large stocks, there is the risk of catching fire.

It should be noted that the National Coal Distribution Policy (NCDP) stipulates that Coal India cannot supply to power plants without signing any fuel supply agreement. This is indeed an irony (subscription required) as despite being in a situation of surplus coal, some 57,000 MW of thermal units still starve for coal since they do not have any supply contract with Coal India. As reported, the only way out now for Coal India is to supply more than 65% of the annual contracted quantity to power plants which have fuel supply agreements.

Presently the stock of Coal India is trading up by 1.6%.

In another news update, traders body - Confederation of All India Traders (CAIT) has opposed the Union Budget's proposal to permit 100% FDI (foreign direct investment) in food processing segment. The body opposed the proposal and stated that the move would adversely impact farmers and will result into mass unemployment.

The body further stated that allowing FDI in food sector is nothing but a step in the direction of opening retail sector to FDI, much against the declared commitment of not allowing foreign players in the retail sector.

The body has urged Prime Minister Narendra Modi to give an audience and listen to their views. It has urged the government to issue a white paper on FDI in retail (subscription required). Lastly, the CAIT quoted that any move to allow multinational companies into Indian retail trade will amount to betrayal of confidence of the small businesses in India.

It was in 1993 when the then finance minister had changed the law to permit FDI in retail trade. But, it was banned in 1996 on political concerns of the ruling United Front government. In 1997, FDI in cash and carry business was allowed up to 100% under the approval of the government. In 2006, it was brought under the automatic route. In the same year, FDI in single brands was permitted with prior government approval and the limit was set to 51%. Since the past few years, the Indian government has been mulling over opening foreign investment in multi-brand retail. But, the political controversies along with the protests from unorganized sector (smaller kirana stores) have delayed the policy so far.

However, we believe that the move to oppose FDI does not make perfect economic sense. While FDI results in some job losses it will also create employment elsewhere. On the positive side, investment in back end retail infrastructure would mean that wastages and pilferages would reduce. Most importantly, the end consumer will be benefited the most as he will get the product at relatively cheaper prices. This shall increase his spending power and thus standard of living.

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