Fund managers are waiting to get a clear direction from the government on this issue.
The Supreme Court has cancelled the
licenses of 214 coal blocks that were allotted since 1993. The apex court has
levied Rs. 295/metric ton of coal extracted till now to be paid by 31 December
2014.
The tremors of this news was felt in the markets which reacted negatively by opening in the red. The Sensex closed 276 points or 1% while the Nifty fell 1.13%.
The apex court’s order sent jitters to sectors which are directly impacted by the order. The S&P BSE Bankex index fell 2.69% while the S&P BSE Power Index fell by 2.80%.
Jindal Steel was the worst hit which fell by -7.55%, followed by PNB (-5.89%), Hindalco (4.20%), Axis Bank (-4.18%), SBI (-3.95%), BHEL (-3.47%) on NSE. Value Research data shows that mutual funds had close to Rs. 16,000 crore exposure to these companies as on August 2014. It may happen that some funds might have reduced exposure in the companies now. Apart from equity, mutual funds also hold investments in these companies through debt funds.
Most fund managers we spoke to were reluctant to talk on this issue.
“Companies
are saying that are waiting for a direction from the government. The coal mines
are owned by companies and they don’t know how they’ll be auctioned. The matter
is very complicated,” said a fund manager from a foreign fund house.
Soumendra Nath Lahiri, Head of Equities, L&T Mutual Fund, said that his fund house has no exposure to metals stocks and moderate exposure to PSU banks. However, his funds are overweight on private sector banks. “Though NPAs are at highest level, we continue to believe that the banks particularly private sector banks will deliver better performance in the next 8 to 12 months period due to strong fundamentals. Currently, the market has provided an opportunity to increase an exposure to such banks.”
Some fund managers say that the industry had already reduced its exposure to the companies involved in this issue. V Balasubramanian, Head – Equity, IDBI Mutual Fund believes that the verdict may not have any major impact on the market. “It’s a short term shockwave. The market may react negatively for a while; however, there is no fundamental risk. The macro-economic indicator suggest that the economy is strong enough to tackle such situation. Stocks of steel, power and banks would be worst affected. Anticipating it, we had reduced our exposure to such stocks. Currently, we don’t have an exposure to steel and power stocks. However, our large cap fund has an exposure to large banks.”
In an earlier interview, Ashish Ranawade, Chief Investment Officer, Union KBC Mutual Fund said, “Clearly, the companies who have captive coal mines will be affected. Power, steel and aluminum producing companies will get hurt badly. It would be unfair to say that our portfolio will not be affected but we are relatively less exposed to such stocks.”