Oil, metal stocks drag PSU index to lowest in a year
Shares of state-owned companies were trading under pressure, with the S&P BSE PSU Index hitting its 52-week low on the back of an over 3 per cent decline in stocks of metal and oil marketing companies (OMCs).
The S&P BSE PSU Index lost nearly 2 per cent to close at 7,844 on Monday, as compared to a 0.76 per cent decline in the S&P BSE Sensex.
The fall in the OMC counters comes amid reports that the governmentcontrolled Indian Oil Corporation (IOC) and Bharat Petroleum (BPCL) might buy a 26 per cent stake each in GAIL India. They will also pay over ~200 billion each to become integrated energy firms. IOCL, BPCL and Hindustan Petroleum Corporation (HPCL) lost between 3 per cent and 4 per cent on the BSE.
Within OMCs, IOC had hit a low of ~176, down 4 per cent, extending its fall to nearly 7 per cent in the last two trading sessions, after the company's shares turned ex-bonus on Thursday. The government-owned oil major rewarded its shareholders with one bonus share for each share held.
"The fall is due to news reports of IOC and BPCL planning to buy stake in GAIL. The government is using such means to generate revenue and that is the reason why many PSUs, including the OMCs, have lost ground. I do not think this is a good time to buy these stocks. If these stocks were to correct another 10 per cent, one could consider making fresh investment in OMCs," said A K Prabhakar, head of research at IDBI Capital.
Another overhang for the OMCs are the upcoming state elections, which analysts said could put pressure on their margins.
"The most glaring concern for OMCs in FY19 is the direction of marketing margins, given five impending state elections, of which three are in the large states of Karnataka, Rajasthan and Madhya Pradesh. In our view, if crude oil moves sideways, which was a high probability, the OMCs will not need a further meaningful revision in retail price to maintain their marketing margins at the current level of around ~3.5 per litre," said Nitin Tiwari and Aakarsh Chaturvedi of Antique Stock Broking in a recent report.
Among other PSU stocks, Steel Authority of India (SAIL), Hindustan Copper, NMDC, Central Bank of India, IDBI Bank, Bank of Baroda and Oriental Bank of Commerce were down more than 4 per cent. Engineers India, Rural Electrification Corporation (REC), BEML, Coal India, Rashtriya Chemicals & Fertilizer (RCF) and Mangalore Refinery & Petrochemicals (MRPL), are some of the other PSU index stocks that declined in the range of 3 per cent to 4 per cent.
Sentiment over metal stocks, analysts said, had been hit by US President Donald Trump's move to impose tariffs on steel and aluminium. That apart, they feel most of these stocks had run up sharply over the last few months. Prabhakar of IDBI Capital, for instance, expects the correction to be gradual and suggests a cautious approach till there was clarity on how the new tariffs play out.
Gaurang Shah, head investment strategist at Geojit Financial Services remained selectively bullish on metal stocks because of Indias' exposure to the US imports of steel and aluminium. He is betting on the domestic consumption pick-up and likes Tata Steel, Hindalco, Vedanta, JSW Steel and SAIL in the metals pack.
"The long-term domestic consumption story remains robust. I do not think there will be too much of a negative impact of the US tariff. I am not reading too much into the correction in the metals segment. These stocks have corrected more on sentiment rather than any change in fundamentals," Shah says.