Sensex Opens Lower; Metal and Power Stocks Under Pressure

Thu, 11 Jun 09:30 am

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Asian stock markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is flat while the Hang Seng is down 0.3%. The Nikkei 225 is trading down by 1.1%.

Meanwhile, the Dow and S&P 500 ended a choppy session lower on Wednesday after the Federal Reserve reassured investors of its support for the economy but projected a 6.5% decline in gross domestic product this year.

Back home, Indian stock markets opened lower.

The BSE Sensex is trading down by 192 points. The NSE Nifty is trading lower by 54 points.

Meanwhile, the BSE Mid Cap index has opened down by 0.2%.

BSE Small Cap index is trading higher by 0.3%.

All sectoral indices are trading in the red. BSE metal Index is witnessing maximum selling pressure, followed by BSE Power Index.

Moving on, gold prices are currently trading up by 0.1% at Rs 46,626.

The rupee is currently trading at 75.58 against the US$.

Ramco Systems share price is in focus today after it was reported that a Mumbai-based investor, Vijay Kedia bought shares (1.1% equity stake) of the company.

Moving on to the news from telecom sector. In what could be a pivotal day for the Indian telecom sector, the Supreme Court is set to take up the adjusted gross revenue (AGR) case today.

The Justice Arun Mishra-led bench of the court is likely to consider the issue of allowing telecom firms to pay the mammoth AGR dues worth Rs 1.4 trillion in a staggered fashion spread over 20 years.

In March, before the commencement of the ongoing coronavirus-forced lockdown, the Department of Telecom (DoT) had moved the Supreme Court proposing staggered payment over 20 years for telecom firms to discharge their AGR dues.

The DoT had said that immediate payment would result in possible bankruptcies and could potentially hurt crores of customers.

Therefore, it proposed the 20-year formula on the back of license fee and spectrum usage charges dues worth 1.4 trillion that was upheld by the apex court in its October 2019 judgment.

However, the Supreme Court on March 18 come down heavily on the DoT for allowing telcos the facility of self-assessing their dues payable.

The Supreme Court had lashed out at the DoT, calling it fraudulent and contemptuous of the court for the DoT to allow telcom firms to rework the amounts payable in contravention of the court's order.

The court, however, had observed that it was open to consider the issue of staggered payment over 20 years, as proposed by the DoT.

There were no subsequent hearings on account of the lockdown, which limited proceedings in the Supreme Court.

Vodafone Idea has paid 68.5 billion of its dues, while the DoT's demand of the firm stands at Rs 582.5 billion. The company's self-assessment pegged its dues at Rs 215.3 billion.

Meanwhile, Bharti Airtel has paid Rs 180 billion so far against the DoT's demands of Rs 439.8 billion. The company estimates its dues at Rs 130 billion.

We will keep you updated on the developments from this space.

Moving on to the news from the economy. Fitch Ratings cautioned that lack of a credible medium-term strategy to stabilize the rising public debt in India after the coronavirus crisis subsides could put downward pressure on its sovereign rating.

This comes days after Moody's downgraded the country's credit rating.

In a sovereign credit overview for the Asia Pacific region, Fitch said sovereign ratings in developing economies in the region remain under pressure.

Fitch, which has the lowest investment grade rating for India with stable outlook, has so far this year downgraded Hong Kong, the Maldives, and Sri Lanka, and removed positive outlooks on the Philippines, Thailand and Vietnam.

Fitch said general government debt already stood at 70% of GDP in FY20, well above the 'BBB' median of 42%. Fitch expects India's ratio of public debt/GDP to rise to 84% of GDP in FY21, up from a forecast of 71% when we affirmed the rating in December.

This is based on our expectation of slower economic growth in FY21 and wider fiscal deficits, assuming the government's fiscal response is restrained.

Fitch said the pandemic has drastically weakened India's growth outlook and laid bare the challenges caused by a high public-debt burden. After the global crisis, India's GDP growth is likely to return to higher levels than 'BBB' category peers, provided it avoids further deterioration in financial sector health as a result of the pandemic, Fitch stated.

Last week, Moody's cut India's sovereign credit rating by a notch to the lowest investment grade with negative outlook, citing growing risks that Asia's third-largest economy will face a prolonged period of slower growth amid rising debt and persistent stress in parts of the financial system.

As per our co-head of research, Tanushree Banerjee, Moody's decision to downgrade India's sovereign rating could be a boon in disguise for Indian banks.

Here's a snippet from the article she wrote:

• "So, how does Moody's downgrade help?
  
  Well, one look at the data of India Inc's overseas borrowing in the past year will answer the question.
  
  The government is not a big borrower in the overseas markets.
  
  Rather, the top corporates in India raise funds overseas (via instruments like ECBs and FCCBs) using India's sovereign rating.
  
  So, a downgrade in India's sovereign rating raises the overseas borrowing cost of the bluechips.
  
  And in turn, they will find borrowing from Indian banks more attractive."

Further, she also noted that the data from the RBI shows that Indian companies borrowed almost US$ 44 bn overseas in the past fiscal.

That is almost 50% of the incremental credit disbursed by PSU banks and private sector banks during the year.

So, if the rating downgrade brings even a fraction of the credit demand from overseas markets back to India, it could massively stoke economic activity.

In fact, it could even kickstart a virtuous credit cycle which eventually could bring about India's Swoosh recovery.

We will keep you posted on such triggers of Covid-19 rebound.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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