International and Emerging Markets Blog

Indian LSE stocks drop on environmental concerns

Thursday, July 15, 2010 | Posted by: Fiona Owen
Categories: India Watch Issue 9 | Tags: India, LSE, Grant Thornton, India Watch, South Asia Group, Fiona Owen, Capital Markets, London Stock Exchange

Grant Thornton’s latest India Watch Index reveals that, over the last quarter, there has been a drop in the share prices of India-focused oil and gas companies listed on the London Stock Exchange (LSE). This was, however, not unexpected given the knock on effect of BP’s exploration disaster in the Gulf of Mexico. Nevertheless, it has in-turn set back the India Watch Index, which was further impacted by other environmental concerns in connection with the mining sector. As a result of the above, a number of investors in the natural resources sector are now beginning to anticipate that India may introduce tougher regulatory rules for oil exploration, deepwater drilling and mining.

The India Watch Index dropped 8.4% in Q2 2010 but maintained a growth level of 1.0% in the first six months of the year. By comparison, the FTSE 100 dropped by 14.4% in Q2 2010, resulting in a total loss of 9.2% in the first half of 2010. Both Indices were outperformed in the first six months of 2010 by the AIM All-Share, which fell by 6.0% in Q2 2010 but grew by 1.2% over the first half of 2010.

The best performing India Watch stocks in the second quarter of 2010 were CBaySystems Holdings Ltd., EIH (formerly Evolvence India Holdings Plc) and Kubera Cross-Border Fund Limited with share price increases of 57%, 22% and 12% respectively.

The spill-over of BP’s exploration disaster was also evident among the lowest performing companies on India Watch. Hardy Oil & Gas plc, the India-focused oil and gas exploration company was one of the most affected and saw its share price fall 21% in Q2 2010, resulting in a 31% decline in the first half of the year.

Meanwhile, Oilex Ltd., the Australian-based AIM-listed oil and gas explorer which also operates in India, saw its share price drop 22% in Q2 2010 resulting in a fall of 45% in the first 6 months of 2010. The FTSE 100 miner, Vedanta Resources, also saw its share price fall in Q2 2010 (26%), resulting in a decline of 19% of its value in the first half of the year. The drop follows reports on environmental concerns about the miners alumina refinery in Lanjigarh in India’s Orissa state, and Vedanta’s planned Bauxite mine at the nearby Niyamgiri mountain.

In spite of recent market jitters, India remains a favourite destination for investors. Since inception in 2007, our India Watch index has gained 59% and outperformed London’s main indices such as the AIM All-Share Index which has fallen 37% since 2007, while the FTSE 100 recorded a 39% fall.

India continues to provide terrific market opportunities but it is essential for corporate investors to get a clear picture of the regulatory framework in the country.

Performance of Indian companies on the London Stock Exchange since January 2007*

Top performing companies over the last quarter

Sector analysis

Fiona Owen
Partner, Head of Capital Markets for South Asia Group
Grant Thornton UK LLP

*Data sourced from Thomson Reuters.
The India Watch index consists of 30 Indian companies listed on AIM or the Main Market (excluding GDRs). We only consider companies to be Indian if they are domiciled in India and/or foreign companies holding Indian assets or Investment companies with Indian promoters. The index has been created via Datastream, a Thomson Reuters product and is weighted by Market Value.