New Delhi: The country's two premier bourses — National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) — today introduced the 15-minute special pre-open trading session, a mechanism under which investors can bid for stocks before the market opens, reports PTI.
The mechanism, known as 'pre-open session call auction', will last for a duration of 15 minutes (from 9:00-9:15 am).
While, this system has been started to reduce the quantum of volatility — typically visible in the first few minutes of trade — but going by the first day's action this special session was more volatile than the normal trading session.
In the first 15 minutes, investors can place orders for eight minutes on the basis of which the exchanges will determine the rates at which trading will happen.
As per the 'pre-open session call auction trend', the National Stock Exchange Nifty was signalling a firm market but when bourses started the normal trading the benchmark indices swung into the red.
Besides, the movement of Bombay Stock Exchange benchmark Sensex and the NSE barometer Nifty were not in tandem. Usually, in normal session, these two indices move in tandem with each other.
"Currently market players in India are not very familiar with this system and it will take some time to get stabilised.
It is a very good attempt in Indian markets, as it ensures the integration with international markets," SMC Global Securities strategist Jagannadham Thunuguntla said.
At 11:25 am, the Sensex was quoting at 19,916.66, down by 208.39 points. The wide-based Nifty too was in the red and was trading at 5,999.20, down by 1.05%.
Market experts believe that the introduction of pre-open session assumes special significance, especially, in situations when there is any major event or announcement comes overnight before market opens.
Such special events may be such as merger and acquisition announcements, open offers, delistings, debt-restructurings, credit-rating downgrades or any rumours regarding any of such events, they said.
On a normal day with no major event before 9:00 am, this pre-open session may appear to be a non-event and a routine exercise. However, on a day when there is any major outcome before the market hours this mechanism assumes special significance, Mr Thunuguntla said.
Capital market regulator Securities and Exchange Board of India (SEBI) had given its green signal for the introduction of pre-open session call auction on the bourses in July this year.
In a call auction practice, participants indicate their willingness to buy or sell units of a security by placing an order for a number of units at the prevailing price before the opening of trade.
The introduction of pre-open session with a call auction mechanism is expected to reduce the quantum of volatility, typically visible in the first few minutes of trade, analysts said.
Initially the call auction session will be applicable for those stocks, which are the part of Sensex and Nifty.
Sensex, the benchmark index of BSE, comprises of 30 blue-chip stocks, while Nifty — the NSE barometer — lists 50 scrips.
Mumbai: India will launch its first-ever offer of shale gas areas for exploration by end 2011, even as it targets at least a billion dollar of investment commitments from the ongoing auction of conventional oil and gas blocks, reports PTI.
"We are evolving a policy framework for shale gas (gas locked in sedimentary rocks) and first shale gas round is planned for end 2011," oil secretary S Sundareshan said here.
Speaking at a roadshow organised to promote 34 oil and gas blocks offered in the 9th round of New Exploration Licensing Policy (NELP), he said potential of shale gas in India is being examined by oil regulator Directorate General of Hydrocarbons (DGH).
India has so far only explored for oil and gas. Shale gas, the gas obtained from sedimentary rocks, is the new focus area in the US, Canada and China as an alternative to conventional oil and gas for meeting growing energy needs.
These unconventional deposits have raised estimates for US gas reserves from 30 years to 100 years at current usage rates. Shale gas deposits were not considered worth tapping before Houston billionaire George P Mitchell pioneered new extraction techniques in the 1990s.
Action is on to "develop a framework for an assessment of resource potential, which would lead to exploitation of this resource. Our intention and endeavour is to put in place a policy framework in about a year's time," he said.
Several basins in India are known to hold shale gas resources. Primarily, focus is on three basins — Cambay (in Gujarat), Assam-Arakan (in the North-East) and Gondwana (in central India). The areas will be identified by next year.
India is likely to sign a cooperation agreement with the US Geological Survey during president Barack Obama's visit next month for knowledge-sharing in the area of shale gas, oil minister Murli Deora said.
Out of 34 blocks offered in NELP-IX, 19 blocks are new areas — seven in deep sea, two in shallow waters and 10 onland blocks. Rest 15 (one in deep water, five in shallow water and nine onland blocks) are recycled blocks.
Of the recycled blocks, five are discards of state-owned Oil and Natural Gas Corporation (ONGC), the largest bidder in the previous eight rounds of NELP.
"We got an investment commitment of $1.1 billion in NELP-VIII," Mr Deora said hoping the current round will be better.
Of the 70 blocks offered in NELP-VIII, only 36 received bids and 33 areas were awarded.
Last date of bidding for blocks offered under NELP-IX is 18 March 2011.
In the eight rounds of NELP since 1999, 235 blocks have been awarded till date. This has resulted in enhancement of exploration coverage from 11% to about 58% of Indian sedimentary basin between 2000 and 2010.
"The discoveries made under the NELP have resulted in in-place hydrocarbon reserve accretion of a staggering 642 million tonnes of oil and oil equivalent gas," minister of state for petroleum and natural gas Jitin Prasada said.
A total of 87 oil and gas discoveries have been made in 26 blocks under NELP during this period.
In the first eight rounds of NELP, $11.1 billion investment was committed but actual investments so far have been $14.3 billion.
In a report to its institutional clients, broking firm CLSA says Coal India deserves a premium over its global peers and believes that the 1-year forward value for CIL is Rs309-Rs324/share against the IPO price band of Rs225-Rs245/share
Offer size: 631.6 million shares
Total number of shares: 6,316 million
Price band: Rs225-Rs245/share
Pre-issue shareholding: 100% GoI
Post-issue shareholding: 90% GoI, 10% public
Issue opens: 18 October 2010
Issue closes: 21 October 2010
CLSA estimates CIL's EPS rising at 15% CAGR over FY10-13. It says in its report on the stock, "CIL has substantial headroom to increase prices in coming years to offset cost increases and will offer significantly lower earnings volatility than global coal companies. We believe that CIL will trade at a premium to global coal peers (trading at ~12x P/E) and in an optimistic scenario, could trade closer to utility company multiples (trading at ~18x P/E). We see a one-year forward value of Rs309-324/share for CIL (market cap $43 billion-$45billion & implying 15.5-16.3x FY12 P/E) based on NPV and multiples-based valuations."
It says its key concerns about the stock would be delays in land acquisition and environment & forest clearances, a rise in costs as new and more difficult mines come on stream, and policy changes by the government in times of widening fiscal deficit that could hurt the company (CIL has cash reserves of $9 billion).
CIL has 10.6 billion tonnes of proven coal reserves (as per Joint Ore Reserves Committee standards) and produced 431.3 million tonnes (MT) of coal in FY10, making it the world's largest on both production and reserves. It is possible that its reserve size could be declared higher once mining studies are conducted on the rest of its resources. CIL accounts for 82% of India's coal output through its seven 100% subsidiaries and 90% of its output is from low-cost open-cast mines, 92% of output is thermal coal and 80% of coal sales are to the power sector. CIL sells its coal for an average price of $25/tonne with cash costs at $17/tonne and cash EBITDA at $7/tonne.
Coal India has 473 operational mines of which 273 are underground, 163 are open cast, 35 are mixed, and 279 are loss-making. Most of CIL's coal has low calorific value with almost 50% Grade F and 24% Grade E coal. E-auctions have helped CIL and it will sell nearly 10% of its production through this route.
CIL has 3,94,041 employees of which 3,40,300 are workmen; 38,773 are supervisors, and 14,968 are executives. Employee expense is its largest expense (47% of total). Its employee productivity is one of the lowest among its global peers.
CLSA believes the company is well-placed to benefit from India's rising coal demand from the power sector. It has decent expansion plans - it is targeting to increase production to 486.5MT by FY12 at 6% CAGR; 25 of its projects are already underway to add 47.5MT of capacity by FY12 and another 20 projects will add 33.3MT of capacity over FY13-17.
However, its biggest beta will probably come from improved realisations. CIL sells coal at a grade-adjusted discount of 57% to global prices. It has hiked its prices only four times since January 2000, after coal prices were deregulated.
However, frequency of hikes has increased in recent years, says CLSA and it expects more frequent price hikes in the future. However, there won't be any "quick convergence with global prices given the large economic ramifications of the same," points out the report. Rising proportion of higher-priced beneficiation coal will result in overall ASPs growing faster than headline prices as well as costs, resulting in margin expansion.
(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).