Weak Start to the Week; Coal India Slumps 2.2%

Mon, 27 Mar Closing

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Indian share markets continued to witness selling pressure in the afternoon session amid weak global markets. At the closing bell, the BSE Sensex stood lower by 188 points, while the NSE Nifty finished down by 63 points. Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished down by 0.3% and 0.1% respectively. Losses were largely seen in metal stocks, oil & gas stocks and pharma stocks.

The Markets on the Roll...

The market is buoyant at the moment. The small-cap index has outperformed with a 14.4% return in the first three months of 2017. The mid-cap index and the BSE Sensex are up 13% and 9.7% respectively.

The BSE Sensex is trading at a PE of 22.3x. The mid-cap index is currently at 30.2x, while the smallcap index is trading at whopping 64.5x.

At Equitymaster, we had a different view. In January 2015, Richa Agarwal, managing editor of small-cap service Hidden Treasure, wrote...

Even while the small-cap index may scare away investors with overtly expensive valuations, it is not the time to ignore small caps. All you have to make sure is that you invest only in the right stocks with a sufficient margin of safety in valuations. Having done that, all you need is the patience to stay invested.

With this approach, the HTR team has been able to beat benchmark indices three times and they expect to maintain the record.

Reliance Industries share price plunged 3% after the Securities and Exchange Board of India banned the company from accessing the equity derivatives market for a year by violating the rules on unfair trade practices when it sold a stake in its erstwhile unit Reliance Petroleum Ltd.

Asian stock markets finished broadly lower today amid rising doubts over U.S. President Donald Trump's ability to pass legislative reforms after Republican leaders pulled a bill to overhaul the U.S. health care system. The Nikkei 225 is down 1.44% while Hong Kong's Hang Seng is off 0.68% and China's Shanghai Composite is lower by 0.08%. European markets are lower today with shares in Germany off the most. The DAX is down 0.73% while London's FTSE 100 is off 0.62% and France's CAC 40 is lower by 0.45%.

The rupee was trading at Rs 65.09 against the US$ in the afternoon session. Oil prices were trading at US$ 47.61 at the time of writing.

According to a leading financial daily, the Comptroller and Auditor General (CAG) are planning to audit the impact of notebandi and the effect it has had on the government's tax revenues. The auditors are preparing to audit tax revenues under the new Goods and service tax (GST) regime and has started reconstruction of capacity building and reorienting its audit methodology and procedures.

Under the special audit, the CAG has already completed the audit of agricultural crop scheme and flood control and flood estimates. Now it is conducting audit of Right to Education, National Rural Health Mission, Defense Pensions and Ganga Rejuvenation.

As per the reports, the CAG has the right to audit the bodies or authorities having any kind of relationship with the revenue and expenditure of the government, and expenditure and resistance by some like city development bodies, DISCOMs and metro corporations will wither away. They plan to audit some issues related to the financial impact of filing, especially its impact on tax revenues. CAG audit may also look into expenditure on printing of notes, the Reserve Bank of India dividend payout and banking transaction data.

Apart from this, the CAG has also conveyed the government its stand on the recent move of the GST Council to delete section 65 of the preliminary draft that authorized CAG to audit GST. Sharma has said that their mandate covers GST just like the earlier taxation regimes were covered. They have already started work on restructuring of their revenue audit arrangements to meet this likely challenge when GST is introduced.

Moving on to news from bank stocks. SBI share price finished up by 1.1% in today's trade after the bank received its board approval to dilute 10% of its stake in the life insurance venture SBI Life through public offer. Of the 10% stake on offer in SBI Life Insurance Company, 8% will be sold via an offer for sale, while the remaining will be fresh issuance of shares.

Meanwhile, SBI may reduce its workforce by around 10% over the next two years according to bank's MD. The decline in staff strength following the bank's merger with six entities would be on account of attrition, reduced hiring and digitization.

In another development, Corporation Bank share price surged 1.6% after it was reported that the company has raised the full amount of Rs 5 billion of the Basel III Compliant Additional Tier-I Perpetual Bonds (Series II) and the same has been allotted by the Securities Allotment Committee of the Board of the Bank on March 24, 2017 to the respective Bond investors with a coupon rate of 10.28% per annum.

Bank (PSU) stocks finished the day on a strong note with Bank of India share price and PNB share price leading the gains.

In news from mining sector, Coal India share price plunged 2.2% after the fair trade regulator Competition Commission of India (CCI) has levied a penalty of Rs 591.01 crore on public sector undertaking Coal India (CIL). The Commission has imposed a penalty on Coal India of 1% of the average turnover of the last three years.

The CCI has found CIL and its subsidiaries to be in contravention of the provisions of Section 4(2)(a)(i) of the Competition Act, 2002, for imposing unfair/ discriminatory conditions in Fuel Supply Agreements (FSAs) with the power producers for supply of non-coking coal.

Due to the statutory monopoly enjoyed by Coal India and its subsidiaries, the buyers are heavily dependent upon the coal companies and insertion of such clause gives Coal India through its subsidiaries an overpowering advantage in the relevant market, which is patently unfair.

And here's a note from Profit Hunter:

The metal sector was the best performing sector after the market bottomed in February 2016. The Nifty Metal Index was trading in a strong uptrend. It rallied from the low of 1,450 in February 2016 to make a high of 3,233 just a few days back. The index is up 103%, while the Nifty 50 Index is up only 30% from the same lows.

But now it seems that the index is losing strength. It is down 6% from its highs. It has made lower high on the daily chart, trading close to the neckline (red line) of a head and shoulder pattern.

If the index closes below the neckline, it will complete the head and shoulder pattern and also form a lower low on the daily chart. This does not bode well for the bulls in the near term.

Of course, there are other factors to look for, but it will be interesting to see if the metal index continues its uptrend or if the head and shoulder pattern will bring a reversal to the index.

Nifty Metal Index Forming Head & Shoulder Pattern

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