Sensex Opens Marginally Higher; Oil & Gas Stocks Lead

Thu, 23 Mar 09:30 am

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Asian equity markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.14%, while the Hang Seng is up 0.31%. The Shanghai Composite is trading up by 0.36%. European stock markets finished weak in their previous trading session.

Meanwhile, Indian share markets have opened marginally higher. The BSE Sensex is trading up by 71 points while the NSE Nifty is trading up by 26 points. The BSE Mid Cap index opened up by 0.6% while BSE Small Cap index opened up by 0.7%.

All sectoral indices have opened the day in green with oil & gas sector and capital goods sector leading the pack of gainers. The rupee is trading at 65.38 to the US$.

Telecom stocks are trading mixed with MTNL and Idea Cellular being the most active stocks in this space. As per an article in a leading financial daily, Idea Cellular and Vodafone are in talks with Brookfield Asset Management and American Tower for a sale of their telecommunications infrastructure in India.

Reportedly, the deal could fetch a combined Rs 100 billion (US$1.5 billion). However, the sale price for the towers could be affected by the pending merger of Idea and Vodafone's Indian operations, which may affect their tenancy levels.

Notably, Vodafone and Idea this week agreed to merge their Indian operations, and are running separate sales processes for the towers. Though the assets could be sold to a single buyer.

One of the important reasons for Vodafone- Idea Cellular merger is the intense competition from Reliance Jio. Does Vodafone-Idea merger mean consolidation in the telecom industry? Kunal Thanvi, our research analyst is of the opinion that the merger of this scale between second and third largest player would result in a complete restructuring in the telecom sector.

Meanwhile, Madhu Gupta, Managing Editor of ResearchPro, believes higher investments to upgrade infrastructure (Subscription Required) will further stretch the companies' balance sheets. Bharti Airtel has planned capital investments of Rs 600 billion called 'Project Leap' to upgrade its infrastructure and protect its home turf. Idea Cellular, on the other hand, is exploring the sale of tower assets to raise funds.

Here's a snippet of what she wrote:

• "The tariff war, no doubt, will benefit the consumer. But the profits and shareholder returns of the telecom industry will be severely crippled if the mindless battle to gain supremacy rages on."

Debt Levels of Telecom Players on an Uptrend

Idea Cellular share price opened the day up by 1%.

Moving on to the news from stocks in oil & gas sector. As per an article in The Economic times, the government has cleared a policy for extending the term of more than two dozen oil and gas production contracts signed prior to 1999 in a bid to bolster energy security. The move is expected to fetch an additional investment of about US$5.43 billion.

The policy covers blocks like Rajasthan oilfields of Cairn India, which was awarded prior to the advent of New Exploration Licensing Policy (NELP) in 1999. Cairn's exploration license (subscription required) expires in 2019 and the company had been seeking a 10-year extension.

The policy will enable the contractors to extract not only the remaining reserves, but also plan to extract additional reserves by implementing new technologies.

Moreover, Cairn India holds a 70% stake in the Rajasthan block while <>ONGC owns 30%. The product sharing contract extension of the block has the potential to add another 250 million barrels of oil equivalent into its reserves.

In 2016-17, the production from these oil and gas blocks, allotted in pre- NELP regime, is around 55 million barrels of oil and 965 MMSCM of natural gas. The recoverable reserve from these blocks is estimated to be more than 426 million barrels of oil equivalent. During the extension period, contractors are expected to make an additional investment of more than US$ 5,430 million.

Reportedly, the government's share of Profit Petroleum during the extended period of the contract would be 10% higher for these fields, thus bringing additional revenues.

Energy stocks began trading on a positive note with Suzlon Energy and Cairn India witnessing maximum buying interest.

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