Essar Steel case appears to be getting complicated

The Essar Steel case appears to be getting complicated by the day with Prashant Ruia approaching the NCLAT over bankruptcy court’s Essar Steel order. A couple of days after the Ahmadabad bench of the NCLT ruled in favor of the Rs.42,000 crore bid made by Arcelor Mittal for Essar Steel, Prashant Ruia and a couple of directors have approached NCLT Appellate Tribunal against the order. Incidentally, the Essar promoters had agreed to settle all financial and operational creditors by infusing Rs.54,389 crore; which was struck down. The case has already crossed the stipulated 270 days timeline.

During the month of February, PSU stocks were the hot favorites of Mutual funds. In a month when inflows into equity funds fell sharply by 68%, some clear fund manager favorites emerged. HDFC Mutual Fund added NTPC, Bharat Electronics, SBI, REC, and Coal India to its portfolio during the month. It sold Oil India and Tata Motors. ICICI Pru also added SBI, NTPC, BOB, and ITC but sold Cipla and Tech Mahindra. PSUs emerged as the big theme for the month of February. Most funds are looking at PSUs as easy dividend plays, which seem inevitable considering the revenue shortfall in the current fiscal.

India may be struggling with NPAs but there are fund managers who find Indian banks attractive at current prices. Even as India struggles with NPAs to the tune of nearly $190 billion, other nations like China, Mexico, Russia, Turkey, Mexico, and Argentina are also expected to see a rise in NPAs. India’s gross NPAs are already at 10% of the total assets. Interestingly, global asset manager Ashmore is positive on Indian and Indonesian banking even as it is negative on Russia and China. The bet appears to be that the NPA cycle in Indian PSU banks may be finally bottoming out.

There was more good news for the PSU banks in India as Moody’s has given a rating thumbs-up to many Indian PSU banks. In the light of the Rs.48,200 crore capitalization announced by the government of India, Moody’s has upgraded the ratings of Central Bank of India and IOB from stable to positive. At the same time, it has also affirmed the stable ratings for Bank of India, Canara Bank, OBC and Union Bank. The enthusiasm was visible with most PSU banks reacting positively to this announcement. This selective upgrade is likely to be inspiring confidence in equity investors with respect to PSU banks.

Nifty and Sensex touched a 6-month high as market cap expanded by Rs.2.27 trillion in a single day. The markets appeared to celebrate the election announcement as well as an extremely market-friendly hydrocarbons policy. Oil stocks were among the major gainers along with metals, autos and PSU banks. PSU banks got a boost with Moody’s rerating a slew of PSU banks. The A/D ratio was positive on Monday at 42:8. Support for the markets also came from the Indian Rupee which strengthened sharply to close well below the 70/$ mark. The rupee at 69.89/$ was led by a sharp surge in FPI flows. FPIs have infused over $3 billion since the last week of February and that helped the rupee. Also, with oil prices stuck in a range, India does not run any immediate risks to its current account deficit.

There are more reasons for oil to remain stuck in a narrow range. Saudi Arabia plans to cut oil exports in April to support oil prices. While the overall cut in OPEC supply will stand at 1.2 million bpd, Saudi Arabia has decided to cut its exports of crude oil to below 7 million bpd. Overall Saudi output is likely to stay below 10 million bpd, almost 20% lower than what the US shale is churning out daily. Apart from the output cuts by OPEC, the sanctions against Venezuela have also helped oil prices move up. A lot will depend on how the global GDP growth pans out as that is a key trigger for oil demand worldwide.

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