Markets add more losses in late morning session

Indian equity benchmarks added more losses in late morning session, with both Sensex and Nifty witnessing sharp fall, as bears held tight grip over the Dalal Street. Domestic sentiments were pessimistic, despite positive cues from other Asian markets. Traders were cautious, amid reports that ahead of its 'Bharat Bandh' call on February 26, traders' body CAIT wrote to Prime Minister Narendra Modi raising issues related to the GST regime, and alleging violation of e-commerce rules by major e-tailers. In its letter to the prime minister, the Confederation of All India Traders (CAIT) called for setting up of a ‘special working group’ at the central level comprising senior officials, CAIT representatives and independent tax experts to review the GST structure and make recommendations to the government.

On the global front, Asian markets were trading mostly in green, even after Japan's private sector downturn continued in February despite the recovery in manufacturing activity. The flash survey data from IHS Markit showed that the au Jibun Bank composite output index rose to 47.6 in February from 47.1 in the prior month. However, a score below 50 indicates contraction in the sector. The headline manufacturing Purchasing Managers' Index rose to 50.6 in February from 49.8 in January. Meanwhile, the services PMI declined to 45.8 from 46.1 in January.

The BSE Sensex is currently trading at 50311.00, down by 578.76 points or 1.14% after trading in a range of 50245.55 and 50986.03. There were 7 stocks advancing against 23 stocks declining on the index.

The broader indices were trading in red; the BSE Mid cap index was down by 0.38%, while Small cap index was down by 0.29%.

The only gaining sectoral indices on the BSE were Metal up by 3.42%, Basic Materials up by 1.29% and Telecom up by 0.49%, while Capital Goods down by 1.72%, Energy down by 1.66%, Auto down by 1.57%, FMCG down by 1.27% and Utilities down by 1.10% were the top losing indices on BSE.

The top gainers on the Sensex were ONGC up by 2.19%, HDFC Bank up by 1.56%, Kotak Mahindra Bank up by 1.03%, Ultratech Cement up by 0.27% and Sun Pharma up by 0.23%. On the flip side, ITC down by 3.94%, Mahindra & Mahindra down by 3.64%, Larsen & Toubro down by 3.30%, Maruti Suzuki down by 2.84% and Axis Bank down by 2.75% were the top losers.

Meanwhile, India Ratings and Research (Ind-Ra) has said that the credit metrics of fertiliser manufacturers in general and urea manufacturers in particular are likely to improve meaningfully in FY22 due to strong likelihood of clearance of subsidy backlogs after allocation of an additional Rs 62,600 crore fertiliser subsidy in the revised estimate of FY21. It will substantially reduce working capital debt and interest expenses. This will also encourage industry players to increase capital intensity to further improve their operating efficiencies.

Urea manufacturers will specifically benefit as their share of subsidy is generally 70 per cent of revenues as opposed to 30 per cent for nitrogen phosphate potash manufacturers. Besides, while the subsidy budget estimate for FY22 is 11.5 per cent higher at Rs 79,500 crore than the FY21 BE of Rs 71,300 crore, the urea subsidy BE has been increased by 22.9 per cent to Rs 58,800 crore and NPK subsidy BE has been reduced by 11.7 per cent to Rs 20,800 crore.

Ind-Ra estimated the fertiliser sector debt to be in the range of Rs 53,500 crore to Rs 56,500 crore at FYE20, up from around Rs 49,500 crore in FY17. The debt is primarily working capital in nature and corresponds to an increase in subsidy receivables outstanding to Rs 47,000 crore to Rs 49,500 crore in FY20 from about Rs 45,500 crore in FY17. The subsidy receivables contribute 85 to 90 per cent to the sector level debt. Accordingly, the sector's net leverage was high at around 6.6x in FY20 and interest coverage was modest at 2.2x.

However, the additional subsidy allocation is likely to substantially increase the sector's cash flow from operations and free cash flows in FY22 from estimated Rs 5,500 crore and negative Rs 400 crore respectively in FY20. Ind-Ra said it does not expect any significant capex in the industry, other than for urea efficiency improvement for some players and regular maintenance and upgradation capex in the near term. Accordingly, clearance of full subsidy backlogs in FY22 will result in the sectoral net leverage declining to around 2x and interest coverage to moving upwards of 5x.In addition, the resultant savings in interest expense are likely to improve return on equity for sector entities especially urea manufacturers up to double digits from the current range of 4 to 7 per cent.

The CNX Nifty is currently trading at 14831.25, down by 150.50 points or 1.00% after trading in a range of 14817.75 and 15010.10. There were 17 stocks advancing against 33 stocks declining on the index.

The top gainers on Nifty were Hindalco up by 5.62%, JSW Steel up by 3.30%, Tata Steel up by 2.37%, ONGC up by 2.19% and Adani Ports up by 2.06%. On the flip side, Mahindra & Mahindra down by 4.06%, ITC down by 3.96%, Larsen & Toubro down by 3.29%, Axis Bank down by 2.94% and Maruti Suzuki down by 2.77% were the top losers.

Asian markets were trading mostly in green; Nikkei 225 surged 203.54 points or 0.68% to 30,221.46, Hang Seng increased 140.84 points or 0.46% to 30,785.57, Taiwan Weighted strengthened 120.63 points or 0.74% to 16,462.01, Jakarta Composite soared 68.32 points or 1.1% to 6,300.25 and Straits Times advanced 7.53 points or 0.26% to 2,888.17. On the flip side, Shanghai Composite declined 2.29 points or 0.06% to 3,693.88 and KOSPI fell 15.12 points or 0.49% to 3,092.50.