Ruling upsets power, mining, bank stocks

Heavy selling was seen in companies that received coal allocations; JSPL hits 5-year low

Shares of metal and mining companies, which faced the brunt of the Supreme Court's decision to cancel coal block allocations, as well as those of banks, took a beating on Wednesday. While Jindal Steel and Power ended 10 per cent lower, Hindalco Industries, after declining five per cent, closed with a decline of 0.5 per cent.

Other stocks that fell included GMR Infrastructure, Usha Martin (which fell about 10 per cent each) and Adani Power, which closed down two per cent. Jayaswal Neco and Monnet Ispat fell about seven per cent each.

Heavy selling was seen in companies for which allocations were cancelled, as investors feared these would have to pay heavy penalties.

State-owned lenders, including Bank of India, Canara Bank and State Bank of India, fell three-five per cent, as investors feared the credit quality of these entities could deteriorate, owing to exposure to the mining sector. It is estimated the banking sector's exposure to mining is about Rs 36,800 crore.

Meanwhile, shares of companies whose coal blocks were exempted from the cancellation — Reliance Power, NTPC and Steel Authority of India Ltd (SAIL) —, gained. While Reliance Power rose 5.3 per cent, NTPC was closed with a gain of one per cent.

Coal India, which will take charge of the coal blocks until the re-allocation auctions are held next year, ended five per cent higher.

“The Supreme Court judgment is disappointing and could lead to further decline in the stocks of companies impacted,” said Nirmal Rungta, director and head (private client group), CIMB Securities.

Last month, the court had declared coal block allocations during 1993-2010 “illegal and arbitrary”, following a 2012 report by the Comptroller and Auditor General stating the sales of coal mines had been under-priced. Since the court's verdict on August 14, shares of Jindal Steel have fallen about 35 percent, while the Hindalco stock has declined 14 per cent.

Analysts fear the cancellation of coal block allocations might aggravate the shortage of coal India is grappling with, as well as raise the import burden. “This (the verdict) is going to be a bit of a setback for state-owned banks, as asset quality concerns might resurface. A lot of these stocks had started to do well on hopes of an economic recovery,” said Rikesh Parikh, head (equities), Motilal Oswal Securities.

Mining stocks could remain under pressure till there is clarity on the re-allocation and the penalties to be paid. Market players are hopeful the government and the companies impacted by the verdict will have a contingency plan in place.

“It's not that this will bring everything to a standstill. I am sure companies have a backup plan. Besides, the re-auctions will add more money to the government's kitty,” said Rungta.