Markets plunge deeper into the red

Tue, 4 Oct 01:30 pm

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Indian stock market indices have marched further into the red territory over the last two hours. Auto and banking stocks have been the leading losers. Barring consumer durables, all the sectors are trading in the negative.

The BSE-Sensex is trading lower by 283 points, while the NSE-Nifty is down by 91 points. BSE Mid Cap and BSE Small Cap indices are trading lower by 1% and 0.7% respectively. The rupee is trading at 49.36 to the US dollar.

Energy stocks are trading mixed with Essar Oil and Cairn India leading the pack of losers. However, Indraprastha Gas and Gujarat Gas are trading firm. As per a leading financial daily, oil marketing companies (OMCs) may have to forego around Rs 60 bn if they liquidate the bonds now as yields have moved up sharply. It is important to note that these bonds were used to compensate the losses of OMCs prior to the introduction of cash subsidies. The OMCs are sitting on oil bonds worth Rs 300 bn issued at a coupon rate of 6.9%. The ten-year bonds now yield a rate of over 8.4 per cent compared to 7.86 per cent in April, 2011. This means that whenever the marketers decide to sell it, they will have to do it at around 20% discount, meaning a loss of around Rs 60 bn. The oil companies have no immediate plan to sell these bonds, but they may have to soon consider it, due to already high gearing levels. Their combined borrowing is well over Rs 1.1 trillion. With delay in government compensation for current fiscal and continued losses on diesel, kerosene and LPG, the marketers continue to borrow more. While Indian Oil Corporation (IOC) is stuck with oil bonds worth Rs 150 bn, Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) carry bonds worth around Rs 75-80 bn each.

Auto stocks are trading in the red with Tata Motors, Mahindra & Mahindra (M&M) and Bajaj Auto leading the losses. As per a leading financial daily, Maruti Suzuki may go for a 40% increase in the production of Swift which is its bestselling car. After the month-long industrial unrest that caused the car maker a production loss of Rs 6.6 bn, the company plans to shift its entire output to the Manesar factory. This is also expected to help it save on logistics incurred on moving panels from Manesar to Gurgaon for car assembly. The manufacturing options at the second plant in Manesar are expected to start in the next few weeks. This will increase the output of Swift to 17,000 units a month from historical highs of 12, 000 units a month. The company will also resume normal production of SX4 and A-star models. Swift has received bookings of 108,000 units. The company aims to reduce the waiting time for Swift, which now stands at eight to nine months, by at least a couple of months.