India Markets Thursday Wrap-Up: Stock Markets Succumb To Slowdown Fears

by: Equitymaster

Global uncertainty and fears that India's growth story may get hindered due to policy inaction took its toll on the indices in the Indian stock markets today. Profit booking in heavyweights across indices led the markets well below the dotted line. While the BSE-Sensex closed lower by around 388 points (down 2.3%), the NSE-Nifty closed lower by around 118 points (down 2.3%). The BSE Mid Cap and BSE Small Cap also lost around 1.7% each. Stocks from engineering and commodity sectors were the top losers.

As regards global markets, Asian indices closed lower today while the European indices have opened in the red. The rupee was trading at Rs 51.57 to the dollar at the time of writing.

Coal India, which supplies coal for 80% of the power produced in the country, has cut its production target to 440 m tonnes for FY12 from the earlier estimate of 452 m tonnes in its annual plan. The PSU has lowered its production target due heavy rainfall, strike and delays in the grant of forestry and environmental clearances to coal projects. During the terminal year of the 12th Five-Year Plan (2012-17) company was planning to mine between 556 and 615 m tonnes of coal. CIL had asked the government to scale down its production target for the 2011-12 financial year to 448 m tonnes, fearing it will not be able to make up for the slippage in output in the first half of the fiscal.

The coal miner was not able to achieve its April-September target by about 20 m tonnes, recording an output of 176 m tonnes against the target of 196 million tonnes, as inclement weather, including heavy rains affected production in almost all its collieries. CIL had in fact lowered its production target to 440 m tonnes from 460 m tonnes in FY11 as well.

Meanwhile, Power Grid Corporation of India is in the process of finalizing $750 million loan from the Asian Development Bank for one of its transmission projects. PGCIL would utilize this loan for establishing a transmission system between the Northern (Haryana) and Western (Chhattisgarh) region. Of the total US$750 mi loan from ADB which PGCIL proposed, loan amount of US$ 500 m shall be availed through Government of India guarantee while the loan amounting to US$ 250 m shall not carry any sovereign guarantee.

PGCIL owns and operates most of India's interstate and inter-regional electric power transmission systems with inter-regional power transfer capacity of about 20,800 MW and wheels nearly 45% of total power generated across India. The company saw 8% YoY growth in its net sales during 1HFY12, while it transmitted 30 billion units of energy in 1HFY12 as against 57 billion units in full year FY11. The sales growth was muted due to slower execution of capex plans. However, the company will benefit from the expansion of its network over the next few years. This will involve large execution issues as is the case with most power sector investments. However, we believe the company stands to gain from these investments over the long run.