Nifty corrected sharply in the last hour of trade on Monday and closed 100 points lower at the level of 11,582. Apart from unwinding in large-cap stocks, the Nifty A/D ratio was skewed in favor of declines in the ratio of 1:2. Two big star performers that corrected sharply during the day were Hindustan Unilever and Bajaj Finance. To an extent, the market fall was triggered by a weak rupee and rising bond yields. The rupee closed at 71.21/$ and 10-year bond yields close at 4 year high of 8%. The 10-year yield closed at exactly 8% reflecting market fears that the RBI may be preparing for another rate hike.
Jindal Steel and Power may look to a comprehensive restructuring to get out its debt woes. JSPL may split its business to reduce its Rs.42,000 crore debt burden. The restructuring of the Jindal Steel & Power group will include the gradual sale of 30% stake in its Oman unit over the next 2-3 years. It will also be looking to appropriately hive some of its other non-core businesses. JSPL is looking to split its steel, power and international business into 3 distinct entities to ensure better valuation on a SOTP basis. JSPL will want to make its focus much more as a steel company than a power company.
Fund managers fear that SEBI restrictions on NRIs could trigger outflows. This pertains to a SEBI circular dated April 10th wherein NRI, PIOs and foreign citizens were barred from being the ultimate ownership beneficiaries of a fund. Many foreign funds have started winding up their India funds after SEBI recently barred Non-Resident Indians from controlling such funds. As per an April 10th circular, NRIs, PIOs and foreign citizens cannot be beneficial owners nor can they be in control of such a scheme. If the beneficiary is not known then the fund manager will be taken as a proxy.
The once powerful business group from Andhra Pradesh belonging to Lagadapati Rajagopal is in trouble. All major assets of Lanco Group will undergo insolvency proceedings. With the Lanco Group missing the August 27th deadline, all the operational and under-construction assets of the Lanco Group will be referred to insolvency proceedings. The group has a total debt of Rs.50,000 crore across its group companies and will have to put up its power assets for sale. The NCLT has been quite strict about liquidating companies that do not live up to the deadlines prescribed for resolution.
A few days after encouraging GDP numbers were announced, the PMI manufacturing for the month of August came in at a very tepid level. Manufacturing PMI for August 2018 eased to 51.7 from 52.3 in the previous month. Manufacturing PMI (Purchase Manager Index) measures whether the particular manufacturing sector in India is expanding or contracting. A figure above 50 is considered an expansion, although in this case, the PMI has been expansionary with waning momentum compared to July. While the PMI number continues to be above 50, there is a worry on the loss of momentum. However, the slowdown could be more due to weak demand in some segments due to the flood situation as well as the postponement of purchases by customers pending full implementation of the GST cuts.
Markets reacted negatively to Balkrishna Industries’ capex plans. The decision by the company to sink Rs.1700 crore into a massive expansion plan has not been received positively by the markets. Specifically, the plan to set up a new plant in the US with an outlay of Rs.700 crore has raised issues of high costs involved and the dollar risks involved. It has traditionally been a cash-rich company and really does not require these kinds of risks. Markets are wary that this kind of capital outlays could negatively impact the company ROE and have an adverse impact on valuations.
