Sensex Slips Over 200 Points; Yes Bank & Maruti Suzuki Top Losers

Fri, 21 Jun 12:30 pm

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Share markets in India are presently trading on a negative note. Barring consumer durables sector and metal sector, all sectoral indices are trading in red with healthcare stocks, automobile stocks and telecom stocks witnessing maximum selling pressure.

The BSE Sensex is trading down by 211 points (down 0.5%), while the NSE Nifty is trading down by 45 points (down 0.4%). The BSE Mid Cap index and the BSE Small Cap index are trading down by 0.2%.

The rupee is trading at Rs 69.63 against the US$.

In the news from the IT sector, Mindtree share price is in focus today as the board of the company approved the appointment of Larsen & Toubro's (L&T) nominees as directors.

In an exchange filing, the IT firm said its board had approved induction of five new directors into the company's board, which will come for shareholders' approval in its next annual general meeting on July 16.

The appointment includes L&T's Chief Executive Officer (CEO) and Managing Director S N Subrahmanyan and its Chief Financial Officer (CFO) Ramamurthi Shankar Raman. Apart from this, Jayant Damodar Patil, whole time director and senior executive vice-president for L&T's defence business, will also be part of the firm's board.

Reports state that Mindtree's board which earlier had eight board members will now have twelve.

In March, L&T had initiated a hostile takeover bid on Mindtree when it entered into a deal to buy Cafe Coffee Day owner V G Siddhartha's 20.3% stake.

As per the reports, the combination of the two companies will help create an entity with a higher turnover of close to Rs 120 billion, closer to larger rivals such as Wipro and TCS.

While the L&T-Mindtree saga will one day disappear into the history books, the lessons will not.

One thing that we must bear in mind is that most companies in India are managed by promoters.

Hence, they are bound to protect their interest and will not relinquish control without a fight.

This means that the company launching such an attack needs to be very clear as to why it wants to go down this route. Here's snippet from the article on hostile takeovers that Tanushree Banerjee, co-head of research wrote:

• "In mergers and acquisitions, in general, the acquiring company has to make sure that it pays a reasonable price for the target company. It needs to gauge the synergies that are likely to flow in on making the acquisition such that the payback period is not too long. Many a time, when competition for a particular target heats up, valuations soar. As a result, the company which has finally made the acquisition ends up paying a very high price."

This applies to hostile takeovers as well.

L&T share price and Mindtree share price are presently trading down by 0.5% and 0.4%, respectively.

Moving on to the news from the automobile sector, Tata Motors share price is witnessing selling pressure today after rating agency Moody's downgraded the stock.

On Thursday, Moody's Investors Service downgraded Tata Motors' corporate family rating (CFR) and senior unsecured instruments rating, citing sustained deterioration in the company's credit profile mainly on account of its British arm Jaguar Land Rover's weak performances.

Moody's also said the outlook on Tata Motors remains negative. Tata Motor's corporate family rating and the company's senior unsecured instruments rating have been downgraded to Ba3 from Ba2, the rating agency said in a statement.

Shares of the company fell around 3% in early trade today on back of the above news.

In other news, Maruti Suzuki announced that Dzire is now compliant with "AIS-145 Safety Norms" (both Petrol and Diesel).

The company said," this will result in a price increase in all variants of Dzire. Depending on features introduced across variants, the ex-showroom price in Delhi and NCR region shall vary from Rs 5,82,613 to Rs 9,57,622".

Maruti Suzuki share price is presently trading down by 2.4%.

Speaking of automobiles sector, according to a report by the Federation of Automobile Dealers' Associations (FADA), retail auto sales in May that fell 7.5% from a year ago show that the overall consumer sentiment is poor. Latest data shows that production cuts will continue as retail demand continues to falter.

After the growth in January, auto sales growth has declined every month. Rating agency CRISIL share price pegs FY20 growth at 3% for passenger vehicles (PVs) and two-wheelers and 6-8% for commercial vehicles (CVs).

Note that, passenger sales fell 20.5% in May 2019 compared to May 2018. This follows a 17.1% year on year decline in April as well.

The decline in May is the worst seen since 2001.

Never Ending Woes For The Automobile Sector

Here's what Tanushree Banerjee wrote about it in one of the recent edition of The 5 Minute WrapUp...

• Multiple factors have affected the auto sector of late.
  
  The liquidity crisis faced by NBFCs, regulatory changes leading to increased costs, new emission norms... they have all taken their toll.
  
  Also, this sector is ripe for disruption with electric vehicles and ride sharing applications.
  
  Maruti, India's largest car maker announced it would stop making diesel cars from April next year.
  
  The coming one year will be a real test for India's auto companies.
  
  It will also tell us if this slowdown is temporary or if there has been a structural change in the sector.
  
  There is one thing I know for sure, dear reader. Only the ones adapting their business models to the rapidly changing environment will survive and thrive.

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

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