Supreme Court Ruling On Coal Blocks Impacts Markets

We had yesterday stated that “Bulls To Rule This Week” and hence had expected a strong opening for the Indian equities. As expected the Indian benchmark indices had opened in green and remained in positive zone for most of the trading sessions yesterday. However towards the fag end came in negative news which resulted in Indices led by metal and power to decline significantly. The Supreme Court (SC) declared coal blocks allocated from 1993 to 2012 as illegal. As a result all the metal counters came crashing down. The likes of Hindalco, Jindal Steel & Power and JSW Steel were the major losers.

Equity benchmarks failed to sustain record highs in late trade on Monday due to crash in metals stocks after the Supreme Court's verdict on coal block allocation case. Banks too put pressure on the market but the buying in defensives like technology and FMCG played supportive role. The 30-share BSE Sensex rallied as much as 211 points intraday to hit a record high of26630.74 but could not sustain the same, up 17.47 points to close at 26437.02. The 50-share NSE Nifty managed to hold the 7900 level, down 6.90 points to 7906.30 after hitting an all-time high of 7,968.25. The broader markets underperformed with the BSE Midcap and Smallcap indices falling 0.4 and 0.6 %.

On the stocks front, the SC verdict on coal block allocation case hammered metals and select power stocks. SC held terms of allotment of coal blocks as illegal but stopped short of de-allocating coal blocks. "Blocks awarded via screening panel since 1993 were illegal. No objective criterion was followed in allocations and guidelines were breached in coal block allocations," says the court in its order, adding it will decide consequences of illegality on September 1. The BSE Metal Index crashed 4.3 percent as Jindal Steel plunged 14 percent and Hindalco Industries lost 9.6 percent. Tata Steel tanked 4.8 percent and Sesa Sterlite was down 3.9 percent. Reliance Power slipped 4 percent as the court disallowed exploitation of captive mines by ultra mega power projects. In other order, Supreme Court stayed the electricity appellate tribunal Aptel’s interim order on compensatory tariff, which allowed Tata Power (down 3.4 percent) and Adani Power (down 4 percent) to charge hiked tariff from March 2014. The apex court asked the tribunal to hear the matter expeditiously.

Looking at the current upward momentum, we believe the market may extend up-move, may be till 8000 level on the Nifty by August series expiry but we advise some profit-taking at these levels. According to us, the market is being driven only by liquidity for now and any global volatility will have widespread effect of the emerging markets.

On global front, US markets notched another first on Monday as Standard & Poor's 500 index nudged briefly past the 2,000-point mark and closed with its second record high in a week. The move was the latest milestone in a five-year rally for US indices, which are enjoying a late-summer revival after dipping earlier this month on concerns about geopolitical tensions in Russia and the Middle East. Investors have put aside those concerns for now, focusing instead on the improving outlook for the U.S. economy, rising earnings and corporate deals. The S&P 500 added 9.52 points, or 0.5 %, to 1997.92. The Dow Jones industrial average rose 75.65 points, or 0.4 %, to 17076.87. The NASDAQ composite gained 18.80 points, or 0.4 %, to 4557.35.

Asian indices are short changed after valuations on the leading benchmark markets climbed to the highest level this year. Nikkei is trading with loss of 0.41% and Hang Seng is also down by 0.11%. Shanghai Composite is also trading in red with marginal losses. SGX Nifty is unchanged at 7917.

We are of the opinion that, looking at the mixed cues the Indian equities are likely to witness gap down opening. However eventually the indices are likely to recover and enter the green zone in early hours of trade.