Indian Indices Turn Volatile; L&T and Hero MotoCorp Top Losers

Tue, 24 Sep 12:30 pm

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Share markets in India are presently trading on a volatile note. Sectoral indices are trading on a mixed note with stocks in the IT sector and energy sector witnessing buying interest, while capital goods stocks and banking stocks are witnessing selling pressure.

The BSE Sensex is trading down by 90 points while the NSE Nifty is trading down by 32 points. The BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index is trading on a flat note.

The rupee is currently trading at 70.84 against the US$.

In news from the media sector, lenders to Essel group sold pledged promoters' shares of Zee Entertainment (ZEE) worth Rs 2 billion on Monday. According to the exchange data, a bulk sale of 7.3 million shares was executed in a transaction executed by Catalyst Trusteeship Ltd.

ZEE shares were placed as collateral with various mutual funds (MFs) and lenders, which had taken loan-against-share exposure to Essel Group firms.

Yesterday, shares of Zee Entertainment plunged over 9% amid talks of one of the lenders invoking the pledged shares and selling those in the market. However, it couldn't be ascertained which lender initiated this share sale, or if there were more than one lender involved.

According to sources, SBI Mutual Fund was the major seller in the market along with a few other funds, which trimmed their respective exposure.

SBI MF didn't officially confirm the transaction. SBI MF had an exposure of around Rs 3.7 billion of debt exposures to Essel group firms.

Responding to queries, a company's spokesperson said "Essel Group confirms that the lenders who had not agreed to grant the extension have exited by selling the pledged shares of Zee Entertainment. The other lenders, who value the assets, have in-principally agreed to grant more time to the Group."

Note that this share sale comes at a time when Essel group is trying to get an extension from mutual funds (MFs) and other lenders to clear its dues. In February, promoters of Essel group firms had reached a 'standstill' agreement with MFs and other lenders to clear its dues by September 30.

As of December 2018, the promoters of the Essel group owed about Rs 130 billion to the lenders, while the businesses had also borrowed another Rs 162.4 billion.

About Rs 75 billion of the promoter's debt, owed to a handful of mutual funds and some NBFCs, was supposed to be due for repayment on 30 September. However, it was reported later that Essel group had managed to extend the moratorium of this payment to March 2020.

Zee Entertainment share price is presently trading up by 4.2%.

Moving on to news from the automobile sector, Maruti Suzuki share price is in focus today. The company's Chairman, R.C. Bhargava on Monday said it is expecting sales of its cars in September to be higher than the previous month.

Bhargava told Reuters, "we expect that retail sales in September would witness an improvement over August. The booking levels have gone up compared to last month, and the expectation is that the 29th and 30th of this month will probably witness very high retail sales."

The company's August domestic sales fell 34.3%, one of the biggest monthly drops in sales.

In other news, rating agency ICRA in its latest report has said the automotive industry, which accounts for almost half the manufacturing GDP of India, is likely to be one of the key beneficiaries of recent corporate tax revision.

It noted that the reduction of corporate tax rates to globally competitive levels will incentivize original equipment manufacturers (OEMs) and their vendors to increase localization.

The rating agency also said that revision in corporate tax will attract foreign direct investment (FDI) in Indian manufacturing sector, as the revised tax structure is now in line with other emerging markets.

According to the report, India has imported auto components worth US$ 17.6 billion during 2019-20 and this is likely to increase further in 2020-21 given the transitionary phase towards stricter safety and emission norms.

Note that multiple factors have affected the auto sector of late. The liquidity crisis faced by NBFCs, regulatory changes leading to increased costs, new emission norms...they have all taken their toll.

Automobile sales have fallen every month for almost a year now, except for October when the numbers were flat. In June, nine out of India's 11 main passenger vehicle makers reported a double-digit decline in sales.

However, it is interesting to note that despite the slowdown in the auto sector, the sales volume of electric vehicles (EVs) are growing at a robust pace.

Sale of Electric Vehicles in India Projected to Go Up 10x in the Next Two Decades

Electric vehicles are very much on their way to invading Indian roads. The threat of disruption in this era is something you cannot ignore.

The recently announced government incentives will give a further boost to EV sales.

The coming one year will be a real test for India's auto companies.

It will also tell us if this slowdown is temporary or if there has been a structural change in the sector.

In our view, companies in the sector adapting their business models to the rapidly changing environment will survive and thrive.

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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