IT Stocks Finish Weak Again

Wed, 17 Aug Closing

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Indian equity markets continued to trade near the dotted line in the afternoon session and finished almost flat on mixed international markets. At the closing bell, the BSE Sensex stood lower by 59 points, while the NSE Nifty finished down by 18 points. Meanwhile, the S&P BSE Mid Cap and S&P BSE Small Cap finished up by 0.7% and 0.5% respectively. Sectoral indices finished mixed with metal and auto stocks leading the gains. While, losses were largely seen in IT & FMCG stocks.

Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.90%, while the Hang Seng & the Shanghai Composite fell 0.48% and 0.02% respectively. European markets are lower today with shares in Germany off the most. The DAX is down 0.69% while France's CAC 40 is off 0.52% and London's FTSE 100 is lower by 0.01%.

The rupee was trading at 66.78 against the US$ in the afternoon session. Oil prices were trading at US$ 46.24 at the time of writing.

Shares of JSW Steel finished the trading day on an encouraging note (up 1.3%) after it was reported that the company completed the acquisition of the entire 74% stake of Praxair India in JSW Praxair Oxygen (JPOPL), for a cash consideration of Rs 2.4 billion. Post the aforesaid acquisition, JPOPL has become a wholly owned subsidiary of the company.

JSW Steel currently sources industrial gases from JPOPL among others at prices based on long term contracts. The said acquisition is strategic in nature as it will provide the company the benefit of backward integration of this critical input.

The company plans capital expenditure of Rs 43 billion this fiscal and Rs 27 billion in the next on improving logistics, setting up a tinplate mill to expand higher-margin value-added products portfolio, and on other operational efficiency projects.

Meanwhile, according to an article in The Economic Times, steel production is expected to grow annually at an average of 7.3% during 2016 to 2020, and touch 127.1 million tonnes as demand from construction, auto and infrastructure industries continue to accelerate. Besides, government has been spearheading the push towards the boost in steel production capacity (Subscription Required), with upgrades being made to existing steel mills and state-owned companies stepping in to build new steel plants.

According to rating agency Moody's, Tata Steel and JSW Steel will outperform that of regional peers owing to rising domestic demand and Indian government's protectionist measures in the form of minimum import prices and anti-dumping duties. In addition, the expected ramp-up of Tata Steel's Greenfield Kalinganagar operations and JSW's brownfield expansion will help raise the companies' earnings in 2016.

Moving on to news from automobile sector. Standard & Poor's Ratings Services (S&P) has reportedly raised its long-term corporate credit rating on Tata Motors to 'BB+' from 'BB' with a stable outlook. S&P has also raised the rating on Tata Motors' US-dollar-denominated senior unsecured notes to 'BB+' from 'BB'.

As per the reports, the agency has raised the rating to reflect the improvement in Tata Motors' competitive position following the better performance of its 100% subsidiary, Jaguar Land Rover Automotive PLC (JLR). The British brand also helped strengthen Tata Motors' financial position and its ability to withstand moderate volatility and the risks from the UK's recent vote to leave the EU.

JLR has improved its product portfolio over the past two years. New and updated models are in the pipeline, including a Range Rover Evoque convertible (launched in 2016) and a long-wheel base version of the Jaguar XF in China. JLR's improved competitive position will enable Tata Motors to register good operating performance (Subscription Required) over the next two years in the form of revenue growth and higher EBITDA margin. JLR accounts for more than 90% of Tata Motors' EBITDA.

At the same time, Tata Motors' India operations have recovered with the improving economic environment, cyclical turnaround for commercial vehicles, and new product launches in the passenger vehicle segment. Tata Motors finished the day up by 0.7% on the BSE.

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