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Sensex Close Flat Ahead of Exit Polls; Maruti Suzuki Finishes Strong
Thu, 9 Mar Closing

Share markets in India remained subdued in the afternoon session and finished flat as caution prevailed ahead of UP state elections. At the closing bell, the BSE Sensex stood higher by 27 points, while the NSE Nifty finished up by 3 points.

Currently, the NIFTY-50 is trading at a price to earnings ratio of 23.2 times. The valuations look very expensive. However, one of the reasons of the steep valuation is the depressed earnings of the NIFTY-50 companies.

Return Ratios Sliding Downwards

Our in-house gurus Rahul Shah and Tanushree Banerjee always look out for big picture ideas.

Here's Rahul:

  • The aggregate data we have pulled for Nifty companies suggests that profit margins were at a ten-year low at the end of FY15. Even if they were to rise to the average of the last ten years, not immediately, but three years out, the upside would be close to 70%.

    Put differently, markets will go up significantly over the next three years if profit margins revert to the mean.

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Meanwhile, the S&P BSE Mid Cap finished down by 0.2%. & the S&P BSE Small Cap ended flat. Gains were largely seen in auto stocks & consumer durables' stocks.

Dr Reddy's Laboratories share price (down 5%) slipped and fell to its 52-week low after the company received 13 observations from the US Food and Drug Administration (USFDA) for its Duvvada plant in AP. It had also recently received three observations for its Telangana plant.

Oil & Gas stocks finished in red as Oil prices slumped to their lowest level of 2017 following a bearish US supply report that also dented American petroleum-linked shares.

Asian stock markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.34%, while the Hang Seng led the Shanghai Composite lower. They fell 1.18% and 0.74% respectively. European markets are lower today with shares in London off the most. The FTSE 100 is down 0.41% while Germany's DAX is off 0.11% and France's CAC 40 is lower by 0.06%.

The rupee was trading at Rs 66.76 against the US$ in the afternoon session. Oil prices were trading at US$ 50.38 at the time of writing.

Tata motors share price finished the trading day up by 1.1% in today's trade after it was reported that the company and Europe's largest car maker Volkswagen Group (VW) have signed a Memorandum of Understanding, on the sidelines of the 87th Geneva International Motor Show to explore a possible joint technical collaboration or joint venture on vehicle architecture, engines and component sourcing.

According to an article in The Livemint, Tata is keen to use VW's electrical architecture in its AMP products; this is understood to be far superior to Tata's own electrical system, and cost-effective to boot. Tata will take the lead on engine development as VW's powertrains, which have a low level of localization, are proving to be too expensive, especially for the Indian market.

Tata Motors has been relying on JLR's dividends to run the show, whereas the passenger vehicle division of the standalone entity has been for long subsidized by the truck division.

The sentiments also remained optimistic as the company's subsidiary - Jaguar Land Rover (JLR) has sealed an agreement with EDF Energy to buy all its electricity from renewable sources up to March 2020.

In another development, Maruti Suzuki is planning to launch four new models and facelifts during the next fiscal year. The new model strategy is part of the previously announced plan to launch 15 new cars including facelifts in the five years leading to 2020.

Maruti Suzuki also plans to boost its new model strategy during 2017-18 and double the number of launches compared to the previous fiscal. The company has already done eight out of the 15 new launches that had been committed till 2020.

Maruti Suzuki share price finished the day strong (up 1.7%) on the BSE.

FMCG stocks finished the day on a mixed note with Pidilite Industries and Colgate leading the gains. According to an article in The Financial Express, FMCG industry has a potential to grow by more than 15% over the next 2-3 years if players in the sector focus on improving brand penetration.

The FMCG industry has witnessed a slowdown for the past three years. The industry's growth rate compared to GDP has fallen to 0.8 from a historical ratio of 1.2. During the slowdown, FMCG companies scaled back growth-oriented investments and shifted focus to sustaining profits-all at the cost of the top line.

The report noted that the industry has seen the growth rate accelerating in 2016 over the previous two years, with 18 of the 22 categories recording an uptick, driven by rural markets. Last year, the FMCG industry grew at 9% till October and rural growth was 1.7 times the urban.

According to India Brand Equity Foundation, the FMCG sector in rural and semi-urban India is estimated to cross US$ 100 billion by 2025. The rural FMCG market is expected to expand at a CAGR of 17.41% to US$ 100 billion during 2009-25.

Rural FMCG market accounts for 40% of the overall FMCG market in India, in revenue terms. Rural areas also would be the major driver for FMCG, as growth continues to be high in these regions.

In news from the IPO space, the initial public offering (IPO) of Avenue Supermarts Ltd, which runs the D-Mart supermarket chain, opened to robust subscription on Wednesday with investors bidding for 1.36 times the number of shares on offer.

IPOs attract retail investors on the promise of listing gains and big brand names. However, high valuations of these issues don't leave anything on the table for the regular investor. In our view, once should not base their judgements merely on the popularity of the IPO. Rather one must focus on the fundamentals of the business, and the attractiveness of valuations.

And here's a note from Profit Hunter:

The pharma sector has been the worst-performing sector since the market bottomed out in February 2016. The Nifty 50 Index gained 28% from February lows, but the Nifty Pharma Index is down more than 5%.

Dr Reddys Laboratory is one of the major stocks dragging the pharma index down.

Dr Reddy Hit a New 52-Week Low
Dr Reddy Hit a New 52-Week Low 

The stock topped out at Rs 4,386 in October 2015. Currently, it is trading at Rs 2,710, 38% below its peak. Today, the stock opened gap down and hit a new 52-week low. It is down 5% for the day. The stock fell as it got 13 observations from the USFDA for its Duvvada oncology formulation facility.

The fall sent the stock broke below its important support level of 2,750 with heavy volumes. The RSI indicator is also trading in oversold territory, indicating lack of strength.

Of course, there are various other factors to consider, but if the stock can't get back above the 2,750 level, it might face some serious selling pressure.

Apart from this, the markets provides with opportunities to capture long-terms trends in stocks. On that note, Apurva Sheth, research analyst, has launched a new trading service, Peak Profit Alert which aims to capture these long term trend based on his proprietary trading system SCOREFASTTM

Click here and know more about this service.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Jan 19, 2018 (Close)