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Sensex records biggest fall in seven months, Rs 8 lakh crore wiped out

RIL slumped 4.4% following news of the cancellation of its Aramco deal

India Financial Markets File photo | AP

It was a field day for the bears on the stock market on Monday as the benchmark indices cracked 2 per cent, dragged down by heavyweights including Reliance Industries and Bajaj Finance and Finserv. Monday’s crash left BSE investors poorer by around Rs 7.9 lakh crore. 

Sell off across bluechip FMCG, auto, pharma and bank stocks led to the BSE Sensex closing down 1,170 points or 2 per cent to 58,465.89 level. The NSE Nifty 50 declined 348 points, or also 2 per cent to 17,416.55 points. This fall was the most in terms of points in seven months

“Cancellation of Reliance-Aramco deal, withdrawal of agriculture farm acts, persistent selling by foreign institutional investors and disappointment from Paytm’s listing dented market sentiments and led to free fall in the market,” said Siddhartha Khemka, head-retail research at Motilal Oswal Financial Services.

A major drag on the benchmark indices was Reliance Industries, which slumped 4.4 per cent on Monday. Late on Friday night, RIL announced that it had been decided to re-evaluate the proposed $15 billion deal to sell a 20 per cent stake in the oil refinery and petrochemicals business to Saudi oil giant Aramco. This decision was taken in the wake of RIL’s huge planned push in the new energy and materials business. 

“With crude at $80 and Aramco’s chairman inducted into RIL’s board, this comes as a disappointment. The deal would have set a valuation benchmark of $75 billion and acted as a catalyst for a re-rating of the O2C (oil-to-chemicals) business,” said Jefferies analyst Bhaskar Chakraborty.

The cancellation, however, would have no bearing on RIL’s balance sheet, which had benign leverage and its ability to fund the renewable foray via cheap sources of capital, the analyst added. 

Jefferies lowered the valuation of the O2C business to $70 billion and reduced the target price by 4 per cent to Rs 2,880, even as it maintained a “buy” rating on RIL.

The other major losers on the markets included Bajaj twins—Bajaj Finance and Finserv, which fell 5.7 per cent and 4.7 per cent respectively. Banking stocks, including SBI, Axis Bank, Kotak Mahindra Bank and HDFC Bank declined in the 1.5 per cent to 3.5 per cent range. Auto stocks including Bajaj Auto, Mahindra & Mahindra and Maruti Suzuki were down 2-3 per cent, as were FMCG companies ITC and Nestle India.

Among other major bluechip losers, Sun Pharma ended 3 per cent lower, Titan fell 3.5 per cent, L&T was down 1.8 per cent and Tata Steel ended 1.9 per cent lower. 

Shares of One97 Communications, the parent of fintech giant Paytm, continue to fall. On Monday, the stock was down 13 per cent and closed at Rs 1,360.30 as investors and analysts remained concerned over high valuations and lack of a clear path towards profitability. Paytm had raised Rs 18,300 crore via its IPO, the largest public issue on India’s bourses so far. Compared with its issue price of Rs 2,150, the stock is now down 36.7 per cent.

Even amid the carnage, telecom stocks shined brightly on Monday after Bharti Airtel announced a 20-25 per cent hike in pre-paid mobile tariffs as well as data top-up plans. Bharti Airtel closed 4 per cent higher. Rival Vodafone Idea ended the day up by over 6 per cent, as investors hoped that the ailing telecom company would follow suit and raise tariffs too.

“The tariff hike would lead to substantial investments in infrastructure and help Airtel in rolling out 5G spectrum in India,” said Jitendra Upadhyay, senior research analyst at Bonanza Portfolio. 

According to Nitesh Jain, Director, CRISIL Ratings, telcos had already invested Rs 5 lakh crore between financial years 2017 and 2021 for 4G services and would need to invest at least Rs 70,000 crore in the 5G spectrum auction likely next year. 

“Assuming other telcos follow suit, and given the rising data consumption, the current hike should increase the sector ARPU by 15-20 per cent to Rs 155-160 next fiscal from Rs 135 last fiscal and the RoCE (return on capital employed) to 7 per cent (from 3 per cent), said Jain. 

The current tariff hikes will lift the sector’s EBITDA (earnings before interest, taxes, depreciation and amortization) by 40 per cent to more than Rs 1 lakh crore in fiscal 2023 as compared to fiscal 2021, he added.

The BSE Sensex hit a life high of 62,245.43 on October 19. Since then, it has corrected more than 6 per cent. Analysts feel the market would continue to consolidate in the near term given the expensive valuations and uncertainties in global markets.

“Global cues are keeping markets volatile – inflation concerns have dominated the headlines and the Fed is starting the tapering programme soon. Investors would also be eyeing the COVID situation in Europe and its impact on economic activities. Thus, in the near term, the market may remain under pressure until fresh positive triggers appear and stock-specific action is likely to continue,” said Khemka of Motilal Oswal.

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