Sensex Opens Marginally Higher; ONGC Rallies 6.3%

Mon, 22 Jan 09:30 am

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Asian stock markets traded on a mixed note in morning trade as market participants kept an eye on political developments in the U.S. after a government shutdown began last week. The Nikkei 225 is down 0.15% while the Hang Seng and the Shanghai Composite are trading up 0.1% respectively.

Meanwhile, Indian share markets have opened the day on a positive note. BSE Sensex is trading higher by 77 points and NSE Nifty is trading higher by 6 points. S&P BSE Mid Cap is trading down by 0.1% and S&P BSE Small Cap is trading up by 0.2%.

Gains are largely seen in energy stocks and PSU stocks. Metal stocks and software stocks witness majority of the selling pressure. The rupee is trading at Rs 63.71 against the US$.

The Market cap to GDP ratio for Indian companies is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it's relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India's GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

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Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

Reliance Industries Ltd (RIL) share price surged 2% in opening trade after the company reported a 25% increase in quarterly profit, beating analysts' estimates, as its telecom unit swung to a profit and the petrochemical business posted strong gains.

ITC share price opened the trading day down by 0.3%. The company closed the third quarter with a 16.8% rise in its net profit at Rs 30.9 billion on the back of a 16% rise in revenue from its 'FMCG-Others' segment. Profit in the hotels segment too rose.

Wipro share price opened down by 1.7% after the the company posted December quarter earnings that missed Street estimates. The company reported profit at Rs 19.3 billion, down 8.4% when compared to Rs 21.1 billion in the same period last year.

Axis bank share price and Asian Paints share price opened in red ahead of the Q3 results to be declared later during the day.

In news from energy sector, as per an article in The Economic Times, Oil & Natural Gas Corporation (ONGC) will use a mix of debt, cash reserves and proceeds from a planned sale of stakes in Indian Oil and GAIL to fund its acquisition of Hindustan Petroleum Corporation (HPCL).

The deal would make state-run ONGC the third largest refiner in India, after Indian Oil and Reliance Industries, and give it control over nearly a fourth of filling stations. Through this acquisition, ONGC will become India's first vertically integrated 'oil major' company, having presence across the entire value chain.

ONGC has agreed to acquire the government's entire 51.11% stake in Hindustan Petroleum for about Rs 370 billion in an all-cash deal that would close by month-end.

The share sale will help government exceed its divestment target of Rs 725 billion in 2017-18 - a first for the government ever. The government has already raised Rs 543.37 billion so far this year.

ONGC share price opened the trading day up by 6.3% on the BSE.

Moving on to news from automobile sector. As per an article in The Livemint, Maruti Suzuki India plans to introduce around four new products in the next 12 to 18 months to build further on five years of successive double-digit sales growth.

The company expects to close the ongoing fiscal with double digit sales growth. Its sales in the domestic market during the April-December period grew by 15.5% at 12,26,418 units as against 10,61,873 units in the year-ago period.

The company is expected to launch all-new version of its popular hatchback Swift at the upcoming Auto Expo.

As per company's senior executive director, the company has been able to sustain its growth momentum in the last few years despite challenges of two consecutive droughts in many parts of India that had an impact on rural markets.

Maruti Suzuki share price opened the trading day down by 0.2%.

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