Benchmarks pare some early losses; still continue to trade in red

Recovering from day’s low, benchmark equity indices pared some losses, however are still trading below the neutral line as losses in power and select metal shares capped gains in defensive stocks. Sentiment on the street weakened after the Supreme Court on Monday held that all coal block allocations made since 1993 till 2010 have been done in an illegal manner, triggering widespread selling in metal and power sector stocks. However, the losses were capped as Finance Minister Arun Jaitley stated that India could exceed the growth rates of 8-9% clocked during the previous UPA regime with a stable and decisive government in place. Some support also came in from reports that foreign portfolio investors (FPIs) bought shares worth a net Rs 127.33 crore on August 25, 2014.

Shares of power, steel, mining and banking stocks were trading under pressure for the second consecutive day after Supreme Court verdict on coal blocks allocation case. Besides, some banking shares too fell as these banks had given loans to these power, mining and steel companies and if the apex court imposes a penalty or cancels the allocations, these loans may turn bad. Meanwhile, shares of auto companies like Tata Motors, Mahindra and Mahindra and Maruti Suzuki slipped after Competition Commission of India imposed penalty of Rs 2544.64 crore on 14 auto companies.

On the global front, most of the Asian stock markets were lackluster as investors continued to digest monetary policy signals from the Jackson Hole meeting of central bankers and looked ahead to data expected to show an improving U.S. economy. However, US stocks ended higher as participants bought shares after recent data showed that the economy is on an uptick while better-than-expected earnings also boosted sentiment. Back home, the rupee opened 5 paise higher at 60.51 per dollar against the previous close of 60.56 per dollar on increased selling of the American currency by exporters. The market breadth on BSE was negative, out of 2297 stocks traded, 993 stocks advanced, while 1221 stocks declined on the BSE.

The BSE Sensex is currently trading at 26432.79 down by 4.23 points or 0.02% after trading in a range of 26481.97 and 26331.83. There were 16 stocks advancing against 14 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index was down by 0.01%, while Small cap index down by 0.31%.

The gaining sectoral indices on the BSE were Healthcare up by 1.32%, FMCG up by 1.00%, IT up by 0.59%, TECK up by 0.57% and Consumer Durables was up by 0.29%, while Power down by 1.63%, PSU down by 1.13%, Infrastructure down by 0.92%, Oil & Gas down by 0.92% and Capital Goods was down by 0.86% were the losing indices on BSE.

The top gainers on the Sensex were Sun Pharma Industries up by 1.95%, Tata Steel up by 1.83%, Cipla up by 1.72%, HUL up by 1.52% and Bharti Airtel was up by 1.10%. On the flip side, Tata Power down by 3.27%, BHEL down by 1.88%, ONGC down by 1.81%, NTPC down by 1.37% and Larsen & Toubro was down by 1.21% were the top losers.

Meanwhile, the Supreme Court has declared captive coal mines allocations made between 1993 and 2010 as illegal and arbitrary. Attributing these blocks allocations as unfair distribution of the national wealth, the apex court stated that common good and public interest have suffered heavily due to these mines allocation as there was no fair and transparent procedure. However, the consequence arising from the verdict of such coal blocks will be considered on September 1, taking into account the investments made by companies for various projects and the procedure to be adopted for cancellation.

A bench headed by Chief Justice R M Lodha clarified that apex Court could cancel these coal block auction where competitive bidding was held at the lowest tariff based on the recommendations made in all the 36 meetings of the Screening Committee. The Bench also stated that the Government dispensation route of coal block auction virtually violated the legislative policy in the Coal Mines Nationalisation (CMN) Act and winning and mining of coal mines has resultantly gone in the hands of private companies for commercial use.

Among 218 allocated blocks, 105 blocks allocated to private companies, 99 were to state-owned firms, 12 went to ultra mega power projects (UMPP) and two to coal-to-liquid projects.

The Bench clarified that coal block allocations made through competitive bidding for the lowest tariff for power for UMPPs might not be cancelled.However, the coal blocks allocated to UMPPs would only be used for that purpose and diversion of coal for commercial exploitation would not be permitted.

The CNX Nifty is currently trading at 7,902.25 down by 4.05 points or 0.05% after trading in a range of 7,915.45 and 7,871.65. There were 20 stocks advancing against 30 declining on the index.

The top gainers on Nifty were Sun Pharma up by 2.04%, Tata Steel up by 1.87%, HUL up by 1.77%, Tech Mahindra up by 1.61% and Cipla up by 1.53%. On the flip side, Jindal Steel & Power down by 5.90%, Tata Power down by 3.54%, IDFC down by 2.18%, BHEL down by 2.15% and PNB down by 1.89% were the top losers.

Asian markets were trading mostly in the red; Nikkei 225 crumbled by 0.50%, Shanghai Composite tumbled by 0.46%, Jakarta Composite dropped by 0.41%, Hang Seng slipped 0.11%, FTSE Bursa Malaysia KLCI declined by 0.02% and Straits Times was down 0.13%. On the flip side, KOSPI Index rose by 0.43% and Taiwan Weighted was up by 0.07%.