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PSU stocks tumble as weak Indian rupee takes toll, Hindustan Petroleum, IOC, Bharat worst hit

BSE PSU index has slid nearly 29% this calendar year compared with the BSE Sensex’s fall of 4%.

A falling Indian rupee (to US dollar), coupled with the sluggish economy, has taken a toll on the performance of the PSU shares (public sector companies), with energy, oil & gas and banking firms retreating the most.

The BSE PSU index, a gauge which measures the performance of leading public sector firms, has slid nearly 29% this calendar year compared with the benchmark BSE Sensex‘s fall of just 4%. The Indian rupee has fallen about 16% in the year to date.

Energy and oil & gas stocks have contributed the most in dragging down the index. Eight companies belonging to these sectors, and accounting for 44.09% weightage of the PSU index, have declined an average 25.22% during the beginning of CY13.

Analysts said the sharp fall in the Indian rupee elevated fears of increase in under-recoveries and, in turn, the government?s twin deficits, despite the attempt to move towards market-linked prices for diesel. Moreover, global crude oil prices hovering around $110 per barrel would affect the companies’ bottom line and act as a ?double whammy? for such companies at a time when the rupee has depreciated 16%.

Among the oil marketing companies, Hindustan Petroleum Corporation Ltd has fallen 36.11%, Indian Oil Corp (IOC) has fallen 26% while Bharat Petroleum Corporation Ltd has fallen 14%.

?There is a big correlation between the rupee and the performance of OMCs. Depreciation of the Indian rupee puts stress on the companies? P&L and directly impacts the balance sheet, as cost of import rises and negates recent measures to reduce under recoveries,? said Sonam Udasi, SVP & head, research, IDBI Capital.

Meanwhile, the Oil & Natural Gas Corp (ONGC) share, which has the highest weightage of 19.64% within the PSU index, is little changed during the year (0.16%). Other major losers this calendar year include Mangalore Refinery And Petrochemicals Ltd (-50.08%) and Chennai Petroleum Corporation Ltd (-54.5%).

Another index heavyweight, Coal India, is down nearly 24% for the year and nearly 12-13% since the start of June. Among other factors, the government?s move to divest its stake in some of the companies also added to sell-side pressure on their stock price. The recent fall in share price of banking and non-banking financial companies did more collateral damage to the PSU index. As many as 27 banking and financial companies ? accounting for 22.7% weightage ? that are part of the index saw their share price fall an average 44.32% since December 31, 2012.

State Bank of India (SBI) ? accounting for 9.13% weightage in the PSU index ? has fallen nearly 35% this year, while Bank of Baroda ?with 1.7% index weight ? has fallen 45.4% in CY13.

?We are assuming a much sharper deterioration in these metrics ? NIMs, loan growth, fee income, lower bond gains (especially state-owned banks), and higher provisioning costs with asset quality ? in a bear case with disruptive interest rates and anemic growth,? said Ridham Desai, strategist and head of Indian equity research, Morgan Stanley.

Desai warned that loan growth could drop to near 10% for the next two years as a sluggish economy, relatively high interest rates and a reluctance on the part of corporates to invest will drag down demand for credit. Credit growth has remained between 13-15% for the last couple of months. The Reserve Bank of India has projected 15% credit growth for the full year.

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First published on: 27-08-2013 at 03:46 IST
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