Metal stocks fell on Monday, with Jindal Steel and Power Ltd (JSPL) slipping nearly 14 per cent, after the Supreme Court said the process of allocating coal blocks between 1993 and 2010 had violated guidelines.
The S&P BSE metal index, closed 4.3 per cent lower, the steepest fall among all sectoral indices, while the Sensex and the Nifty ended flat. Most metal stocks, except Coal India (which closed marginally positive) lost 2-14 per cent.
Saurabh Mukherjea, chief executive (institutional equities), Ambit Capital, says: "The judgment was widely expected. That being said, the enormity of the judgment of annulling 20 years of coal block awards makes this a historic one. I won't be surprised if even in the days to come, the stocks continue to react."
Impact
Analysts say the ruling will have a negative impact on various companies, especially those that are controversy-ridden. However, painting the entire sector with the same brush isn't advisable.
"The ruling is likely to derail business activity at a corporate level, particularly for the metals 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," says Deven Choksey, managing director and chief executive officer, K R Choksey Shares and Securities."
Adding: "However, we will have to look and ascertain the impact on a company-to-company basis 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, under a properly formulated policy."
Earlier, the Central Bureau of Investigation (CBI) had alleged for several years, mining licences were given arbitrarily to private companies close to the ruling party, without a transparent bidding process. The coal blocks allocated during that period are in Jharkhand, Chhattisgarh, Maharashtra, West Bengal, Odisha and Madhya Pradesh.
Analysts say the court ruling will hit metal companies banking on captive coal blocks for operations, including power generation, the most. These companies include JSPL, Sesa Sterlite and Hindalco, they say.
As a strategy, Choksey doesn't suggest avoiding these stocks completely. This is because sooner or later, the government will have to find a solution to this. In an uncertain environment, the fall in stocks presents long-term investors a buying opportunity at lower levels, he says.
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