Metal and power weigh heavy

Tue, 9 Mar 11:30 am

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The Indian markets continued to remain extremely volatile, dragging the benchmark index below the dotted line during the previous two hours of trade. Currently, selling activity across stocks from the metal, oil & gas, realty, auto, and power is weighing heavily on the indices. Nevertheless, stocks from IT, telecom, healthcare and FMCG sectors are managing to garner investors' interest.

The BSE-Sensex and the NSE-Nifty are currently trading lower by around 28 points and 15 points respectively. Stocks from the midcap and small cap spaces are currently trading in the red, with the BSE-Midcap and the BSE-Smallcap indices trading lower by 0.27% and 0.45% respectively. The rupee is trading at 45.53 to the US dollar.

As per a leading business daily, L&T is aiming to have a power generation capacity of 5,000 MW by the year 2015. This will need a total funding of about Rs 300 bn, of which about Rs 70 bn would be equity with the rest being debt. Further, the company's first power plant of 1,400 MW in the state of Punjab is expected to start by January 2014. Two more power plants of 1,600 MW each are also slated to come up with one of them in Chhattisgarh, while the location of the other unit is yet to be decided by the company. As per the company's management, L&T will right now focus on power generation, after which the next step would be to focus on power transmission. Of the total coal requirement for the 5,000 MW of power generation capacity, the company expects to import roughly 20% from outside the country.

With the number of private players that have either recently got into the business of power generation, or are looking to get into the field, we believe that the business of power generation as such is likely to become much more competitive going forward. Further, L&T has negligible experience in operating power plants. Considering that the company's strength lies in its core business of engineering and construction, and the vast scope that lay ahead for that business, we believe that the company's shareholders would be better served by focusing its energy on its core business. The stock of L&T is currently trading flat.

According to a leading business daily, Wipro's India focused IT arm, Wipro Infotech has won a contract worth Rs 600-700 m from Financial Intelligence Unit (FIU) of India in order to develop an IT network for tracking all irregular financial transactions in the country. This IT system will also track the financing of terrorist organizations as well as money laudering trail in India. This is expected to be a 5 year IT project, first two years being development and implementation and next 3 years being maintenance and support. Other bidders for the contract were TCS, Infosys and Mahindra Satyam.

It may be noted that FIU is a finance ministry's arm that keeps a track of all the financial transactions occurring in the country. It tracks a list of around 10,000 financial organizations including even the Indian stock exchanges. We believe that this is a super-critical project for Wipro as well as FIU. The financial IT network will also connect FIU to FIUs in other countries as well as to critical departments like CBI, Income Tax and all the banks in India. Even insurance companies as well as other non-banking financial institutions will be required to report all irregular financial transactions of customers in the network. While this is a great move to bring in effective governance for the country, it will help Wipro in strengthening its foothold in the growing Indian IT market. The company generates over 22% of its consolidated topline from India. IT majors like TCS, Infosys, Wipro are trading in the green.