 "SC ruling on coal block allocation sees JSPL, Hindalco slip nearly 10%")
Metal stocks lost ground on Monday with the S&P BSE Metal index losing over 3% in intra-day deals after the Supreme Court (SC) held that guidelines were breached in coal block allocation during the previous government’s (United Progressive Allance’s, or UPA’s) tenure. It also said that the terms of allotment dating back to 1993 were illegal.
“Being such a significant, valuable and important natural resource, the allocation of coal blocks for the period 1993 to 2010 is the subject matter of this group of writ petitions filed in the nature of Public Interest Litigation, principally one by Manohar Lal Sharma and the other by the Common Cause. The allocation of coal blocks made during the above period by the Central Government, according to petitioners, is illegal and unconstitutional,” the Supreme Court noted.
S&P BSE Metal index, a gauge of metal companies, the largest loser among sectoral indices, tanked 434 points, or 3.4%, in intra-day deals at 12,415 compared to 126 points, or 0.5%, rise in the benchmark index – the S&P BSE Sensex.
“The ruling is likely to derail the business activity at a corporate level, particularly for the metal business. Companies will have to buy coal from other destinations / sources, which could invite logistics issues and a cost element. At the same time, this is going to possibly delay the entire growth revival in the economy. Having said that, we will have to look and ascertain the impact on a company – to – company basis and a specific site rather than generalising it. But it looks like the government will have to act quickly and do the allocation of blocks on a merit basis and under a properly formulated policy,” said Deven Choksey, managing director and chief executive officer, K R Choksey Shares and Securities.
The 2012 report listed both private and public sector companies like Jindal Steel & Power Limited (JSPL), Aditya Birla-owned Hindalco, Tata Steel and NTPC among others as the leading beneficiaries of these coal allocations. Most of these stocks lost between 4 – 12% at the bourses post the SC ruling on Monday.
The Central Bureau of Investigation (CBI) has alleged that mining licences were given arbitrarily to private companies close to the ruling party for several years, without a transparent bidding process.
The coal blocks allocated are in Jharkhand, Chhattisgarh, Maharashtra, West Bengal, Odisha and Madhya Pradesh. These were allotted to private companies between 2004 to March 2011.
Among the lot, analysts say that metal companies that are banking on captive coal blocks for their business operations, including power generation, will be the most troubled as fallout of this ruling such as Tata Steel, JSPL, Hindalco etc.
As a stock strategy, Choksey does not suggest avoiding these stocks completely as sooner or later the government will have to find a solution to this. However, in an uncertain environment, the fall does present a buy opportunity at lower levels for long – term investors, he says.