Banking & Auto Under Stress

Mon, 26 Sep 01:30 pm

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Indian Indices continued to remain stressed during the post-noon trading session tracking weakness in the Asian markets. Barring metal and oil & gas stocks, major sectoral indices are witnessing selling pressure with stocks from banking and auto leading the losses.

The BSE Sensex is trading lower by 277 points (down 1%) while the NSE Nifty is trading lower by 81 points (down 0.9%). The BSE Mid Cap index is trading down by 0.3% and BSE Small Cap index is trading down by 0.2%. Gold prices, per 10 grams, are trading at Rs 31,279 levels. Silver price, per kilogram is trading at Rs 46,588 levels. Crude oil is trading at Rs 2,995 per barrel. The rupee is trading at 66.70 to the US$.

As per an article in The Economic Times, Coal India Limited (CIL) is planning to re-enter the African country in search of a new project. This comes after a less than a month after formalizing its exit from developing coal blocks in Mozambique.

Reportedly, CIL's arm Coal India Africana (CIAL) was allotted two exploratory blocks covering 224 square km at Tete province in Mozambique in August 2009. CIL claimed that there was no coal in the block and hence no commercially viable mining operations could be pursued.

However, in its re-entry bid, CIL will approach the Mozambique government for the allotment of a new coal block, but that it will seek an assurance on coal grades. Despite its disastrous effort to develop its maiden foreign coal mine acquired six years ago in Mozambique, CIL had been budgeting funds for probable acquisitions every year. Moreover, CIL is preferring a coking coal block.

Meanwhile, Indian government is planning an ambitious coal project in Mozambique. This involves mining and creating infrastructure for transportation of the fuel to India. According to preliminary contours of the project still in the works, coal mining will be done by Coal India Ltd. A railway network will be set up to bring the coal to a greenfield port built by Jawaharlal Nehru Port Trust (JNPT). The coal may then be brought to India to fuel its electricity demands, the reports noted.

It must be noted that, this step also comes at a time when CIL was aiming to develop coal projects (Subscription Required) in Mozambique, surrendered its exploratory block.

With the same strategy in focus, CIL earlier this week announced that Coal Videsh, the overseas arm of CIL, was in touch with an Indonesian government coal miner seeking to acquire coal assets in that country.

Moving on to the news from the energy sector. As per an article in a leading financial daily, The Board of ONGC has approved signing of a preliminary agreement for buying a stake in Gujarat government firm GSPC's KG basin gas block.

The MoU (memorandum of understanding) also approved the incorporation of a dispute resolution wherein any differences over issues like valuation or natural gas reserves would be referred to a three-member committee of outside experts.

Initially, ONGC was not eager to buy stake in the block as it felt the block had reserves far less than what GSPC was claiming. However, it has now agreed to look at the possibility and the MoU is a step further in that direction.

Reportedly, GSPC was to begin gas production from the block in 2013. But after pumping in USD 3.6 billion it was found that gas reserves were only one-tenth of 20 trillion cubic feet claimed in 2005 and that too is technically difficult to produce. Consequently, GSPC has been seeking to sell a majority stake in its block in Bay of Bengal to ONGC to avoid defaulting on loans. In order to bail out of the situation, it offered to sell 50% stake to ONGC.

Meanwhile, Bharat Petroleum (BPCL) (Subscription Required) is expecting to finish work on its 15.5-million tonne refinery expansion in Kochi by December. It is further looking at increasing its capacity to 22 million tonnes (MT). The refinery is also setting up a petrochemical complex which would enhance the value chain, generate employment opportunities and increase economic activity in Kerala.

As part of expansion, the company will also be setting up a green biofuel refinery to produce ethanol by converting agricultural and municipal waste.

In the energy sector, the government is looking to merge 13 state oil companies to create a giant corporation. The idea is that the creation of such a giant firm will catapult India into a much bigger league. Whether this highly ambitious plan will be successfully executed is a big question.

ONGC was trading down by 0.3% at the time of writing.

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