Rising Crude Oil Prices, DHFL's CP Default, and Top Cues in Focus Today

Thu, 27 Jun Pre-Open

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On Wednesday, share markets in India traded on a positive note most of the day and ended marginally higher.

The BSE Sensex closed higher by 157 points to end the day at 39,592. Vedanta and Power Grid were among the top gainers.

While the broader NSE Nifty ended up by 51 points to end at 11,848.

Among BSE sectoral indices, metal stocks gained the most by 2.9%, followed by power stocks and realty stocks.

Top Stocks in Focus Today

From the energy sector, NTPC share price will be in focus today as the company announced it had won solar energy projects by UPNEDA.

The state-run power major said it has won 40 megawatt (MW) solar energy projects in an auction conducted by Uttar Pradesh New and Renewable Energy Development Agency (UPNEDA).

From the aviation space, SpiceJet share price will also be in focus today as the low-cost carrier said it would launch eight new daily international flights from Mumbai and Delhi in July.

The company in a regulatory filing said it will service Mumbai-Riyadh-Mumbai, Mumbai-Dhaka-Mumbai, Delhi-Dhaka-Delhi and Delhi-Jeddah-Delhi with daily non-stop flights.

Reports state that SpiceJet will use its 168-seater Boeing 737-800 aircraft on all these routes.

The airline currently operates 597 average daily flights to 62 destinations, including 53 domestic and 9 international locales.

DHFL Misses Commercial Paper Repayment

Mortgage lender Dewan Housing Finance Corporation (DHFL) is yet to repay Rs 2.3 billion out of the total Rs 3.8 billion of commercial paper to a dozen investors. On Tuesday, the company in a regulatory filing said it has repaid Rs 1.5 billion so far.

This is the second time this month that the company has missed the repayment deadline on a set of outstanding bonds.

Earlier this month, DHFL defaulted on interest payment of Rs 8.5 billion on its non-convertible debentures, following which its credit rating was downgraded to default or 'D' by rating agencies CRISIL and ICRA.

The delay in repayment comes ahead of the meeting of lenders to be held in the first week of July to hammer out a rescue package that includes loan restructuring, fresh working capital support, inducting a new financial investor, and a new management team.

On June 17, The Economic Times reported that the Employees' Provident Fund Organisation (EPFO) had sought details of DHFL's plans for cash generation amid mounting concerns of default. The largest domestic institutional investor in debt assets sought to redeem half of its DHFL investments exercising the 'put option', an exit route given to investors before scheduled maturities.

EPFO invested about Rs 13 billion in debt securities sold by DHFL. When EPFO made the investment in 2014-15, the company's debt was rated 'AAA' by CARE. As per rules, EPFO cannot invest in any debt securities rated below 'AA+'. But pension and insurance funds such as EPFO are not required to show mark-to-market losses.

Over the past few months, the company has sold retail loans worth Rs 300 billion via securitization. It has also sold several of its strategic retail assets, including affordable housing arm Aadhar Housing Finance, educational loan business Avanse and DHFL Pramerica Asset Managers.

In January, DHFL sold Rs 13.8 billion of wholesale loans to foreign alternative investment management fund Oaktree Capital, which buys distressed loan portfolios at a discount.

As per the data, State Bank of India (SBI) is the largest lender to DHFL with a total exposure of around Rs 100 billion.

DHFL has repaid around Rs 400 billion of its financial obligations since September and remains committed to meeting all debt obligations in a timely manner, the company said in its regulatory filing on Tuesday.

From the Insurance Space...

Market participants will be tracking SBI Life Insurance share price today. Yesterday, the stock of the company hit a 52-week high of Rs 715 per share, on the BSE with heavy buying seen at the counter in response to excessive bids being received for stake sale.

The firm, which has put Rs 16.3 billion worth of shares under offer for sale (OFS), received bids for nearly 86 million shares against 25 million shares on offer.

Most of the bids came at Rs 670 per share, higher than the base price of Rs 650 set for the OFS, the data provided by stock exchanges showed. The two-day OFS opened on Tuesday for non-retail investors and Wednesday for retail investors.

Foreign partner of SBI Life Insurance, BNP Paribas Cardif proposed to sell up to 25 million shares, representing 2.5% stake in the insurance company. Following the sale, its holding will drop to 5.2% from 7.7% now.

Meanwhile, in other news, state-owned Life Insurance Corporation of India (LIC) has sold over 19.2 million shares, representing about 2% stake of Asian Paints, through open market transaction.

With this transaction, LIC's stake in Asian Paints has now come down to 3% from 5% earlier.

Reportedly, the total sale value could not be ascertained as the insurer sold the shares over a period of time between January 9-June 24, 2019.

Crude Oil Prices Inch Higher on Falling US Stockpiles

Crude oil continued its momentum seen this week and witnessed buying interest yesterday.

Oil prices rose over 1% yesterday to hit their highest in nearly a month as widely-watched data showed US crude stockpiles fell more than expected.

As per the data, US crude stockpiles dropped by 7.5 million barrels in the week ended June 21 to 474.5 million. This compared with analyst expectations for a decrease of 2.5 million barrels.

Crude stocks at the Cushing, Oklahoma, delivery hub fell by 1.3 million barrels.

Gains were also seen on the back of tensions between Iran and the United States.

Earlier this week, US Secretary of State Mike Pompeo said significant sanctions on Tehran would be announced soon which will be aimed at further choking off resources that Tehran uses to fund its activities in the region.

Market participants will be closely tracking crude oil prices in the coming weeks ahead of the OPEC meet.

The members of the Organization of the Petroleum Exporting Countries (OPEC) have agreed to meet on July 1, followed by a meeting with non-OPEC allies on July 2 where they will discuss whether to extend a deal on cutting 1.2 million barrels per day of oil production that runs out this month.

Note that rising crude oil prices have a big impact on the Indian economy as it imports over 70% of its energy needs.

Rise in crude oil increases input costs for dependent firms. It also means rising inflation. Rising inflation means rising interest rates.

It also puts pressure on the government to cut excise duty, thereby impacting its revenues. We have already seen that happening.

Research Analyst, Richa Agarwal believes that this has the potential to bring down sentiments in the domestic markets. She further believes that, if oil prices continue their upward march in a tight global environment, a broader correction in the sentiment fueled domestic market cannot be ruled out.

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

To know more on crude oil, you can read one of Vijay Bhambwani's recent articles: Is OPEC Dying?

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

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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