The big investments in steel are happening by the dozen

Nifty was closer to its all-time high as it gained 50 points to comfortably settle at 11,134. The rally in the Nifty was led by Birla group stocks like Hindalco, Grasim, and Ultratech. Stocks like Larsen & Toubro as well as Lupin also added heft to the Nifty. Interestingly, the sharp rise in Nifty came despite weakness in the INR. The rupee closed the day 8 paisa weaker at Rs.68.94/$, close to the critical 69 mark. The rupee weakness was largely attributed to the sustained strength in the dollar and aggressive dollar buying by banks and importers who were looking to hedge their open dollar exposures.

The big investments in steel are happening by the dozen now. JSW Steel has embarked on a massive expansion of plan which will be predominantly inorganic. The company plans a massive Rs.45,000 crore investment to expand capacity in 4 years. In fact, JSW Steel plans to expand its steelmaking capacity from the current level of 18 MTPA to a level of 24.7 MTPA by mid-2020. The essential strategy of JSW Steel will be inorganic and the Monnet Ispat merger could be the beginning. The steel is staring at a 3-fold increase in domestic steel demand by 2030 and steel majors are bracing for the same.

The saga of inter-PSU divestment continues with the government planning to sell its NHPC stake to NTPC. Currently, the government owns 73.67% stake in NHPC, which is worth $2.6 billion. At least, in this case, it appears to be a win-win situation for the buyer and the seller. The government gets to meet its divestment target easily for the year while NTPC goes beyond its traditional fossil fuel portfolio. IN a way, it will catalyze NTPC’s gradual shift from a fossil fuel player to a more environmentally friendly product portfolio. To that extent, this deal is likely to face less resistance compared to the IDBI deal.

The HDFC group sees the big gap and the big opportunity in the financial sector and is moving all guns blazing into banking and housing finance. The group parent, HDFC, plans to raise a sum of Rs.35,000 crore through the issue of bonds. As of now, the entire issue is expected to be raised through private placements only. Apart from expanding its loan book, HDFC will also look to raise $1.5 billion via ECBs. HDFC Bank has already overtaken ICICI Bank as the larger private sector lender by a huge margin now. HDFC wants to quickly consolidate on its early bird advantage in the housing finance sector.

At least for now, there appears to be no respite for the extent of NPAs for the banking system. Bad loans of the Indian banking system have scaled the level of $150 billion as of the end of the last fiscal year. PSU banks accounted for nearly 86% of these bad loans with the private banks accounting for just about 14% of the total bad loan book. The big worry for the banking sector is that the real pain of the power sector and the telecom sector is yet to manifest itself and when that happens, the situation could only get worse.  While the NCLT process is on, the pain on the NPA front may take a few more quarters to fully bottom out. The government has also gone ahead and aggressively capitalized the banks with a focus on beleaguered PNB. The total infusion of Rs.11,300 crore may be small but significant nevertheless.

With the mid-cap index diverging from the Nifty by over 20%, the PMS schemes managing the monies of the rich and famous are deep in the red. Seven out of the top 10 portfolio managers may have lost money in June quarter. The April-June period was marked by intense volatility in the markets overall as well as a sharp correction in mid cap and small cap stocks. The bottom line is that most of the PMS players were relying on mid caps and small caps to generate the alpha. These have turned out to be the worst performers in the last 6 months. However, 3 months may be too short a time to assess.