Metal & Realty Stocks Lead Losses

Fri, 24 Jun 01:30 pm

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Following a negative trend since the opening of the trading day, the Indian indices continued to trade deep in the red. Sectoral indices are trading in the red with stocks from the metal and realty sectors bearing the maximum brunt.

The BSE Sensex is trading lower by 851 points (down 3.1%) and the NSE Nifty is trading down by 270 points (down 3.2%). The BSE Mid Cap index is trading lower by 2.6% while the BSE Small Cap index is trading lower by 3.1%. Gold price, per 10 grams, is trading at Rs 31,479 levels. Silver price, per kilogram, is trading at Rs 42,497 levels. Crude oil is trading at Rs 3,274 per barrel. The rupee is trading at 67.90 to the US$.

Stocks in the auto sector are trading on a negative note with Tata Motors and Ashok Leyland witnessing maximum selling pressure. As per a leading financial daily, the stock price of Tata Motors plunged as much as 13% in the morning after news of UK's exit from the European Union alarmed the markets.

A key reason for the fall is because the company's subsidiary Jaguar Land Rover (JLR) derives nearly 24% of the total sales volume from the EU. The subsidiary imports nearly 35-40% of its raw materials from the EU. Hence, JLR's earnings growth, margin trajectory and volumes growth hinges on the outcome of the UK referendum.

Reportedly with the exit of UK, EU will impose new tariffs on vehicles made outside its boundaries which would make JLR cars less competitive. The possibility of decline in pre-tax profits by 2020 will arise if Britain returned to World Trade Organisation rules for trade with Europe. This would lead to a 10% cut in the tariff on exports and about 4% reduction in the tariff on components.

One shall also note that JLR is building 300,000 units per annum assembly plant in Slovakia. It comes right in the middle of the EU.

Also, in another update pertaining to Tata Motors, JLR (Subscription Required) has reported to recall more than 11,000 vehicles in China due to faulty crankshaft sensors adding to concerns. The scrip of Tata Motors is trading down by 10.3% currently.

Moving on to the news from telecom secto. As per an article in The Economic Times, Vodafone India and Idea Cellular are likely to be the most aggressive buyers in the upcoming mega spectrum auction. Both of them together are expected to put in nearly US$4.5 billion bids for 4G spectrum.

Reportedly, there are 7 circles where Vodafone has neither 3G nor 4G spectrum. And Idea is lacking in airwaves for data play in at least 5 circles. Till now, Idea has won a total of 65.2 MHz of spectrum. This auction will give telecom operators more spectrum to launch 4G services and also improve their services. Around 2,300 MHz of airwaves will be up for auction in seven bands - 700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz and 2,500 MHz.

It will be auctioned at a base price of Rs 114.8 billion per MHz. For pan India 5 MHz spectrum in this band, a telecom operator will have to pay a minimum of Rs 574.2 billion if no counter bids are made during auction. The cost of delivering mobile services in this band is estimated to be around 70% lower than the 2100 MHz band, used for providing 3G services.

This round of auction will be crucial for the two operators. It will be a key thing to watch if they match up with the other big telecom players.

Idea Cellular was trading down by 3.5% at the time of writing.

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