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Auto, banking, realty shares worst hit; Hang Seng, Kospi also lose, inquiry against Trump causes jitters

Indian equity benchmarks lost more than a per cent each on Wednesday amid a global sell-off, as investors turned jittery over renewed geopolitical tensions and domestic slowdown concerns. While investors sold shares across sectors, the worst hit were automobile, banking and realty stocks.

The 30-share Sensex lost 503.62 points, or 1.29%, to close at 38,593.52 as index heavyweights like HDFC, Tata Motors, State Bank of India, Maruti Suzuki India, Yes Bank, ITC, L&T and M&M, all lost more than 2% each.

The broader Nifty closed at 11,440.20, shedding 148 points, or 1.28%. The sectoral indices representing realty and public sector banks, however, lost 3.06% and 5.63%, respectively. The fall in the banking index was primarily due to SBI, which lost more than 7% after Morgan Stanley downgraded the stock on concerns related to asset quality.

Elsewhere in Asia, both Hang Seng and Kospi lost over 1% each, while the benchmarks of all other leading markets ended in the red.

The global sell-off was primarily due to launch of a formal impeachment inquiry of U.S. President Donald Trump. While speaking at the United Nations, the U.S. President fired a fresh salvo at China, saying that the time of trade “abuses” by Beijing was over.

“The approval of impeachment investigations against U.S. President has unnerved the markets,” said Gaurav Dua, head – Capital Market Strategy & Investments, Sharekhan.

“The political uncertainty in USA at the time of slowdown in the economy could certainly put further brakes on the global economic growth in the near term,” he added. On the domestic front, investors turned cautious after Asian Development Bank lowered its growth forecast for India from the earlier projected 7% to 6.5% for 2019-20.

Investor sentiment

The weak market breadth reflected the subdued investor sentiment on Wednesday as more than 1,800 stocks lost ground on the BSE as against only 718 gainers. Further, as many as 238 stocks were locked to their lower circuit on BSE. Foreign portfolio investors again ended the day as net sellers at nearly ₹350 crore with domestic institutions also pressing the sell button with net sales of ₹762 crore.

‘Indian market now more competitive’

The cut in corporate tax rates announced by the government last week has provided the much-needed trigger for foreign investors to look at fresh investments in Indian equities.

While market participants believe that it might be too early to expect a reversal or even a slowdown in the outflows, they feel that the lower tax liability has certainly made the Indian market more competitive in terms of attracting foreign capital.

Last week, the government slashed the effective corporate tax rate to 25.17% and said that new domestic manufacturing firms incorporated after October 1 would be eligible for a tax rate of 15% without any incentives.

On Monday — the first trading session after the tax cuts — foreign portfolio investors (FPIs) were net buyers at nearly ₹2,700 crore, which was one of the highest single-day net purchases by overseas investors in recent times.

While FPIs have been net sellers in the following two trading sessions, market experts believe that the tax cuts would have a positive effect on FPI flows but it will take some time for the impact to be visible.

‘Will take time’

“The tax cuts have made India quite competitive compared to other emerging markets,” said U.R. Bhat, MD, Dalton Capital Advisors India.

“It has the potential to attract large FPI flows but it will take some time. The impact cannot be seen in a few weeks but it’s a very good starting point,” said Mr. Bhat.

“U.S.-China trade talks collapse or the initiation of impeachment proceedings against the U.S. President are big global developments and these events will certainly impact the Indian market. But, other things being equal, the tax regime has become attractive and foreign investors would be more attracted towards the Indian market than earlier,” he explained.

This assumes significance as FPIs continued to sell Indian stocks even after the government rolled back the tax surcharge that was announced in the Union Budget.

FPIs were net sellers at nearly ₹7,000 crore between August 23 — when the rollback was announced — and September 23 when tax rate cuts were announced.

The Sensex registered its biggest single-day gain in over a decade on September 20 even as some of the leading global financial majors were quick to raise their Sensex or Nifty targets post the tax rate cuts, reflecting a renewed bullish outlook.

Citi raised its March 2020 Sensex target from the earlier 39,000 to 40,500 while Nomura raised its Nifty March 2020 target to 12,545 on the back of a potential 7% earnings increase in FY21.

‘Firms should inform CRAs about delayed loan repayments’

Amid the hammering of share prices due to loan defaults and subsequent actions by lenders against borrower companies, all listed companies have been asked to promptly disclose to the exchanges all “material developments” relating to the defaults, including about inter-creditor agreements.

The direction has been issued by the BSE and the NSE in consultation with the capital markets regulator SEBI (Securities Exchange Board of India).

More surveillance

Besides, the two exchanges have also announced additional surveillance measures for companies wherein the creditors of a listed company may have or are in process of taking action as per the Insolvency and Bankruptcy Code (IBC) or inter-creditor agreement (ICA) resolution process.

In separate circulars, the two exchanges said the developments related to the ICA were likely to have significant impact on prices of the securities of the listed entities, whose assets have been deemed to be ‘stressed’ on account of default or delay in interest/principal payments.

With a view to providing for early recognition, reporting and time-bound resolution of stressed assets, the RBI, in June, had issued certain directions to lenders, including banks and systematically important NBFCs, as part of its Prudential Framework for Resolution of Stressed Assets Directions, 2019. SEBI has also come out with new norms that make it mandatory for companies to provide details on delayed loan repayments and possible defaults to credit rating agencies. The framework would enable credit rating agencies to get timely information on possible defaults.

Indian headcount rises to 953 from 831 last year; networth of 344 individuals falls

The economic slowdown and rupee depreciation have led to significant erosion in the networth of Indian billionaires, with 344 individuals registering a net drop in wealth compared to 2018, constituting almost 50% of Hurun India Rich List 2018.

A total of 112 individuals dropped out from IIFL Wealth Hurun India Rich List 2019, which says the number of U.S. dollar billionaires in the list has dropped for the first time since the inception of Hurun India Rich List in 2012. However, the slowdown is not as bad compared to that of China, where Hurun China Rich List registered 266 dropouts. In 2014, when the NDA government took charge, the number of U.S. dollar Indian billionaires increased by 60% to 109. Interestingly, while the number of Indians in the list has grown from 831 in 2018 to 953, the number of dollar billionaires has reduced from 141 to 138.

Top for 8th straight year

Mukesh Ambani, chairman of India’s second-most valued firm Reliance Industries, continues to top the list for the eighth consecutive year, with a total net worth of ₹380,700 crore. His brother Anil Ambani, the chairman of Reliance Group, has seen maximum erosion in his wealth from ₹19,500 crore last year to less than ₹1,000 crore this year, forcing an exit from the list.

London-based S.P. Hinduja and family, worth ₹186,500 crore, retains the second rank in the list.

With a wealth of ₹1,17,100 crore, Azim Premji, founder of Wipro, rose to the third spot. L.N. Mittal, chairman & CEO of ArcelorMittal, is the fourth richest with a wealth of ₹1,07,300 crore. Gautam Adani stormed into the top 5 with a total wealth of ₹94,500 crore, a growth of 33% over last year.

While the cumulative wealth for this year shows an increase of 2% compared to last year; the average wealth shows a decline of 11%.

Anas Rahman Junaid, MD and chief researcher, Hurun Report India, told The Hindu, “Slowdown definitely has an impact on the rankings of Indian billionaires. When the stock market goes down, it has direct impact on the market valuations of these companies.”

Post-issue, government’s stake will come down to 87.5% from 100% now

IRCTC is the only entity authorised by the Ministry of Railways to provide catering services to the railways. Ramesh Sharma

Indian Railway Catering and Tourism Corporation (IRCTC), the railways’ online ticketing, tourism and catering arm, plans to enter the capital market with an initial public offer of ₹645 crore.

The public issue will open for subscription on September 30 and close on October 3. The company is the only entity authorised by the Ministry of Railways to provide catering services to the railways, offer online railway tickets and packaged drinking water at railway stations and trains in India.

The public offering is part of the government’s disinvestment programme and will lead to the holding by the government — which holds the stake through Ministry of Railways — declining from the current 100% to 87.5%. The company will offer nearly 2.02 crore shares in the price band of ₹315 to ₹320 each.

The company will also be offering a discount of ₹10 on each share to applicants in the retail and employee categories.

Since this is an offer for sale by the government, IRCTC will not be receiving any proceeds from the issue.

IRCTC earns the maximum revenue (55%) from its catering operations followed by travel and tourism (23.38%), ticketing (12.35%) and ‘Rail Neer’ (9.28%).

53 million users

Incidentally, the IRCTC ticketing website has more than 53 million registered users and about 8.4 lakh tickets are booked daily with the annual transaction value pegged at ₹36,000 crore.

For the financial year ended March 31, 2019, the company reported a net profit of ₹272.56 crore, which was higher than the previous year’s ₹220.62 crore. The company, which is completely debt-free, had cash reserves of ₹1,140.04 crore as on March 31, 2019.

Finnish major’s India arm plans to invest ₹6,500 crore in the country over 5 years

Bright sheen: Fortum aims to take its total installed capacity to over 2,100 MW. Kommuri Srinivas

Fortum India, a unit of the €5-billion Finland-based Fortum Oyj, plans to set up 300 MW of solar power capacity each year in India for the next five years, taking its total installed capacity to over 2,100 MW.

The investment will be about ₹1,300 crore per year, totalling investments of ₹6,500 crore in the next five years.

Sanjay Aggarwal, MD, Fortum India Pvt. Ltd. said, “We are planning to add 300 MW of solar capacity in India every year. India is the hub for Fortum’s solar expansion. We have an installed capacity of around 700 MW in solar.”

The company has its parent’s approval for investments of up to €400 million in India.

India’s solar capacity had reached 30,000 MW by July 2019 and the government has a target to reach 1 lakh MW capacity of solar power by 2022 with potential investments of $100 billion.

When asked if the target of 1 lakh MW by 2022 was achievable, Mr. Aggarwal said, “We have leapfrogged from 400 MW of solar capacity in 2012-13 to over 30,000 MW now. Last year alone, we added over 8,000 MW. I think we can can do around 10,000 MW each year in the coming years.”

Fortum has entered into a 50:50 joint venture with Numaligarh Refinery Limited to set up a bio-ethanol plant in north east with a project cost of ₹1,500 crore. The company will use bamboo as raw material for its bio-ethanol plant.

“The construction of the plant has started and the project is likely to be completed by 2021. We will be selling the ethanol to Numaligarh Refinery,” said Mr. Aggarwal.

Fortum is also planning to set up electric vehicle charging stations across India.

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