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Sensex Trades in Red; PSU & Energy Stocks Decline
Thu, 22 Feb 01:30 pm | Karan Janani, TM Team

Indian share markets continued to trade in red during the noon session weak Asian markets. PSU stocks and energy stocks are witnessing majority of the selling activity. Meanwhile, software stocks are trading in green.

The BSE Sensex is trading lower by 135 points and the NSE Nifty is trading down by 44 points. Meanwhile, the BSE Mid Cap index is trading down by 0.3% & the BSE Small Cap index is down by 0.2%. The rupee is trading at 64.81 to 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.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

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.

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.

In news from energy sector, as per an article in The Hindu, Oil and Natural Gas Corp. (ONGC) is set to hire international oil service giants for the first time to boost output from domestic oil fields in response to a government push to increase local supplies and cut expensive imports.

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Reportedly, has shortlisted U.S. oil service companies Halliburton, Schlumberger and GE subsidiary Baker Hughes to submit proposals on boosting production from two onshore fields.

The government last September proposed selling a 60% stake in ONGC's producing fields to foreign companies to ramp up domestic oil and gas output and meet Prime Minister Narendra Modi's target of cutting oil imports 10% by 2022.

India's oil production has stalled below 1 million barrels per day (bpd) in recent years, even as oil demand has surged. That has resulted in its crude oil imports soaring, making it the world's third-biggest importer, behind China and the United States. In January, India's imports hit a record of almost 5 million bpd.

ONGC's output is declining at the rate of 7 to 8% a year. A major part of the company's capital expenditure is spent in efforts to pump more oil and gas to set off the yearly decline. For the fiscal year ended March 31, 2017, ONGC's standalone crude oil production stood at 20.855 million metric tonnes (417,000 bpd), a 1% decline from the previous year.

ONGC share price was trading down by 2.1% at the time of writing.

Moving on to news from hotel sector. The Indian Hotels Company Ltd share price was trading on an encouraging note (up 0.8%) after it was reported that the company has forayed into Bhopal, Madhya Pradesh, by launching Vivanta Bhopal, through a management contract with Genex Hotels Pvt Ltd (Genex).

This will be IHCL's first hotel in Bhopal, expanding its presence across key state capitals and furthering its position of having a network of hotels in all the key commercial centres of India.

Meanwhile, the company is ready for a three-pronged strategy - Re-structure, Re-engineer and Re-image - to drive profitability through better margins for the hospitality company.

Through this strategy, Indian Hotels is seeking to improve EBITA margins from the current 17% to 25% by 2022.

Having reduced its debt levels to Rs 35.6 billion, the company is reportedly now planning to further monetise its land parcels, properties and other non-core assets to drive its profit margins. Building alliances with group companies, selling property such as apartments owned by the company and engaging with more management contracts instead of buying hotels, are some of the ways in which the company would be improving its margins.

In news from the economy, foreign direct investment (FDI) in India grew marginally by 0.27% to US$35.94 billion during the first nine months of the current fiscal year 2017-18.

According to data released by the Department of Industrial Policy and Promotion (DIPP), the country has received US$35.84 billion FDI during April-December 2016-17. However, in rupee terms, FDI inflows dropped by 4% to Rs 231,457 crore during the first nine months of FY18, as compared to Rs 240,385 crore in the same period of FY17.

During the first nine months of the current financial year, the sectors which attracted maximum inflows were services, telecommunications, computer software & hardware and construction activities. Services contributed around 17% to total inflows with an investment of US$4.62 billion, followed by telecommunications and computer software & hardware which contribute 8% each with investment of US$6.13 billion and US$5.15 billion, respectively and finally construction activities contributing around 3% (US$2.5 billion).

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