Indian share markets slip into red

Thu, 1 Aug 11:30 am

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Indian share markets have slipped into red during the previous two hours of trade. The most noticeable upward movements have been witnessed in IT and FMCG shares whereas Realty and PSU shares are facing the maximum selling pressures.

The BSE Sensex is down by 28 points and the NSE-Nifty is down by 17 points. BSE Mid Cap is down by 1.6% and BSE Small Cap is down by 0.6%. The rupee is trading at 60.6 to the US dollar.

Except few such as Neyveli Lignite and KSK Energy, most of the Power sector shares are trading in losses with Jaiprakash Power and NHPC Ltd facing the maximum selling pressures. According to a leading financial news medium, it has been decided that the Government is set to adopt a revenue-sharing model for coal blocks. In that case, the companies that are awarded mines will have to pay state governments a certain amount for every tonne produced for captive use. This system will be similar to royalty payment by coal miners. This will benefit the Government since revenue sharing will be done on actual production of coal and will not require estimating reserves. The earlier proposal shared was a profit-sharing model. However, this proposal stands risky for bidders as they will be unaware of the cost of extraction of coal at the time of placing bids. Further, the Government has also decided to bar companies that secure coal blocks from diluting equity. This is to avoid illegal profiteering from the scarce natural resource.

Recently, on July 3rd, the Government allocated 14 coal blocks to state-run power companies such as NTPC and Neyveli Lignite Corp to cater to 31,800-mw power generation capacity envisaged to be set up at an investment of Rs 1600 bn. NTPC is already facing issues related to fuel shortages and power pricing. And this Government measure will add to the company's woes. That said, given its market share and leadership position, NTPC stands as one of the most efficient players in the power generation space. The long-term prospects for NTPC remain intact. NTPC's share is down by 1.0%.

Except ADC India Comm, Bharti AIrtel and MTNL, all Telecom shares are trading in red with Reliance Communications and Idea Cellular facing the maximum selling pressures. According to a leading financial news daily, Bharti Airtel Ltd's improving domestic performance has raised hopes for the buoyancy in the subdued telecom sector. While the bottom-line for the Company has declined during the first quarter of the current fiscal, the growth in key metrics such as average revenue per user and rates per minute has been heartening. This is indicative of the cooling off of the competition following years-long price war in the crowded Indian cell-phone industry.

However, regulatory hurdles continue to linger for the Indian mobile market that is the world's second biggest by users. Bharti and other telecom players have been facing regulatory headwinds such as high spectrum prices and a Government demand that they should be paying billion dollars in spectrum charges. That said, the easing competition has been benefitting Bharti and other telecom players as several small players have been compelled to shut or scale back their operations after the Court invalidated their permits.

Bharti Airtel, which entered the African markets in 2010, is yet to make its operations profitable there. In its latest earnings performance for the first quarter of FY14, the company has reported a 9.3% YoY increase in total revenues but a 9.6% YoY decline in net profits.