Supreme Court verdict mars Indian indices

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Continuing the losing streak, Indian equity markets remained under pressure during the last hour of trade. The crucial Supreme Court verdict over the coal block allocation brought jitters to the markets. While BSE Sensex was down 31 points, the NSE-Nifty stood flat and was moderately down by 15 points. While most of the sectoral indices ended in red, the mid and small cap indices too bore the brunt. Both the BSE Mid Cap and the BSE Small Cap indices lost steam and were down by 1.2% and 1.6% respectively. FMCG and capital goods' stocks witnessed the maximum selling pressure.

On the global front, the Asian indices closed the day on a mixed note. The European indices too have opened mixed. The rupee was trading at Rs 60.95 to the dollar at the time of writing.

One set of news that has had a big impact on the Indian markets today is that the Supreme Court in its judgment today has cancelled 214 of 218 coal block allocations. It had declared these as illegal back in August. This move is expected to have major implications on the energy, metals and mining sector. Also it is worth noting that only four blocks linked to big power projects have been spared. Thus, all private firms allotted coal blocks by various governments between 1993 and 2011 have lost their mining rights. And now the government is free to auction or allot the blocks to central firms. The court's decision hinges on the fact that the government had underpriced coal mines and had effectively given away as much as USD 33 bn or Rs. 1.86 crs in windfall gains to companies in the process. This scandal came to be known as "coal-gate". It may be noted that India is acutely suffering from low coal supplies which it needs to fuel power plants.

While the stock of Jindal Steel and Power (down 10% today) was impacted after Supreme Court's verdict on coal block allocation, the verdict proved beneficial to Coal India (up 5% today). Not just the energy sector, but also the banking sector is bound to feel the impact of this verdict. Lenders such as IDBI bank (down 5.5% today), that has almost Rs 20 bn of exposure to companies affected by the Supreme Court order, may also be impacted. While the bank is still under the process of assessment, we continue to track the news closely to ensure updating our subscribers with all the major ramifications.

As per a leading daily, a Reuters poll survey indicates that the Reserve Bank of India (RBI) might wait till 2QFY15 before going for any rate cuts. The sticky inflation which is yet to cool off is the prime concern for the Central Bank. The poll suggests that the RBI would leave its key repo rate unchanged in the upcoming Monetary Policy scheduled on 30th September 2014.

While inflation challenges remain, the sluggish investments, stalled projects, government policy paralysis and high interest rates have already harmed the India's economic growth. While growth is a concern, paring down interest rates is not the only solution. While the RBI Governor is well aware of the trade-off in growth, his policy moves have been focused on targeting inflation for some time now. That said, big ticket reforms and structural changes in the system are the only things that can turn the prospects of the Indian economy on a sustainable note. On this count, hopes from the reformist Modi government stay large.