Share markets in India are presently trading on a negative note. Sectoral indices are trading on a mixed note, with stocks in the telecom sector and automobile sector witnessing maximum selling pressure.
The BSE Sensex is trading down by 129 points (down 0.4%) and the NSE Nifty is trading down by 46 points (down 0.4%). Meanwhile, the BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 73.01 to the US$.
In the news from the aviation sector, shares of the airline companies are witnessing selling pressure today. Losses are seen on the back of a sharp rise in crude oil prices.
Note that crude oil prices rose this week on expectations of a tighter market once US sanctions start targeting Iran's petroleum industry from next month.
Speaking of the airline sector, India's aviation industry is on a high-growth trajectory. India's domestic air traffic has seen a prolific growth of 20-25% during 2015 and 2016. And in 2017, it tapered to 17.4%. However, for the first time, domestic air traffic crossed an important landmark of 100 million passengers in a calendar year.
What's foreseeable for India's aviation traffic now is some pressure on the back of the consistent rise in crude oil prices.
Oil prices are closely monitored by the Indian air carriers, as aviation turbine fuel is their single largest input cost. A sharp rise in the cost of fuel puts pressure on margins, and consequently an increase in airfares.
In the news from the financial sector, shares of IL&FS group companies are witnessing buying interest today as the government took control of the IL&FS group. Although air travel is becoming the new normal, investors need to understand the industry dynamics before buying up aviation stocks.
The government took control of the troubled Infrastructure Leasing and Financial Services (IL&FS) and said the move was to protect the country's financial system and markets from potential collapse.
The government further said it is fully committed at ensuring that the needed liquidity for IL&FS is arranged from the financial system and there are no more defaults.
Last week, the government had decided to remove the management of IL&FS following serial defaults by the company and its subsidiaries to lenders. It was reported that the government has moved the National Company Law Tribunal (NCLT) for a change in the company's management.
The above government intervention comes as cash-strapped IL&FS on Sunday said that the company was unable to service its obligations on account of loans from banks and financial institutions of Rs 2.23 billion due on September 28 and Rs 470 million due on September 29.
Earlier, it could not service repayments due on September 18 and 14. Also, there was a delay in servicing some inter-corporate deposits, which resulted in the downgrading of the company.
Now the group flagship and holding company, IL&FS, and key group entities carry either the default 'D' grade or a sub-investment grade rating.
The shareholders approved the company's proposal to raise up to Rs 150 billion by issuing secured non-convertible debentures through a private placement. They also gave the nod to increase the borrowing limit from Rs 250 billion to Rs 350 billion.
The IL&FS group has a complicated structure, with the holding company owning stakes in its financial services arm as well as the subsidiaries that operate its infrastructure assets.
Further, a look at the shareholding pattern of IL&FS underlines the scale of the problem.
IL&FS - Too Big to Fail?
Two of India's biggest entities comprise of the top 5 shareholders in IL&FS. LIC has a 25.3% stake. HDFC Ltd owns 9%. Along with Central bank of India (7.7%) and State Bank of India (6.4%), these entities own almost half of IL&FS.
Adding all these stakeholders signifies how much is at stake on the revival of IL&FS.
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