Sensex Opens Higher; IT and Metal Stocks Lead

Thu, 14 Mar 09:30 am

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Asian stock markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.7% while the Hang Seng is up 0.2%. The Nikkei 225 is trading up by 0.7%. The US stocks rose on Wednesday, led by gains in healthcare shares, and Boeing edged upward even as the United States joined other nations in grounding the company's 737 MAX jets.

Back home, India share markets opened on a positive note. The BSE Sensex is trading up by 132 points while the NSE Nifty is trading up by 33 points. Both, the BSE Mid Cap index and BSE Small Cap index opened up by 0.1%.

Except FMCG stocks and power stocks, all sectoral indices have opened in green with IT stocks and metal stocks witnessing maximum buying interest.

The rupee is currently trading at Rs 69.54 against the US$.

Speaking of Indian share markets in general, how do things look on the valuations front?

The Sensex price to earnings ratio has moved over the last five years. It has mostly been in a rising trend, except some intermittent declines.

But the Sensex tells a very a selective, skewed story of just the 30 largest companies.

So, it would be worth seeing the valuation trend of a much broader index.

Ankit Shah just did that and picked the NSE 500 for his latest study.

What he found was the NSE 500 index was trading cheap before the BJP came to power at the Centre in 2014. Since then, the price to earnings ratio of the index has been trending higher, like the Sensex.

It is interesting to note that the NSE 500 index has almost doubled between February 2014 and now. The price to earnings multiple of the index has gone up almost 70% during the same period, as can be seen from the chart below.

Market Valuations - 2014 to 2019

What does all of this mean?

Here's what Ankit wrote about it in one of the edition of The 5 Minute WrapUp...

• What this means is that the gains have mostly come from valuation multiple expansion and only about 30% from earnings growth.
  
  While the NSE 500 P/E ratio is down 12% from its August 2018 high of 34.5, it's still quite on the higher side.
  
  As such, I believe the key to the next bull run would be a good growth in earnings of listed Indian companies.

Whether this growth comes in, and how, remains to be seen. We will keep you updated on developments from this space.

In the news from the economy. The Reserve Bank of India (RBI) has decided to inject rupee liquidity into the system through long-term foreign exchange buy/sell swap, which is a first-of-its-kind instrument used for liquidity management.

The RBI would conduct dollar-rupee buy/sell swap auction of US$5 billion for a three-year tenor on March 26.

The swap will be in the nature of a simple buy/sell foreign exchange swap from the Reserve Bank side.

Under the swap, a bank would sell US dollars to the RBI and simultaneously agree to buy the same amount of US dollars at the end of the swap period.

Reportedly, the US dollar amount mobilised through this auction would also reflect in RBI's foreign exchange reserves for the tenor of the swap while also reflecting in RBI's forward liabilities.

The market participants, it said, would be required to place their bids in terms of the premium that they are willing to pay to the RBI for the tenor of the swap, expressed in paisa terms up to two decimal places.

Under the swap auction, minimum bid size would be US$25 million and in multiples of US$1 million thereafter.

Moving on to the news from pharma sector. As per an article in a leading financial daily, the US regulator barred Lupin's Mandideep, Madhya Pradesh facility from getting new approvals for exporting to the US its largest market, on the back of manufacturing practices concerns.

The company has received a letter from the US Food and Drug Administration (USFDA) classifying the inspection conducted at its Mandideep (Unit 1) facility in December 2018 as Official Action Indicated (OAI).

Lupin said there are no new drug master file and abbreviated new drug applications pending review or approval from the Mandideep (unit-1) facility. The company also doesn't expect this classification to disrupt supplies or existing revenue from operations of this facility.

In December last year, the USFDA had issued a total of 22 observations after inspecting the Mandideep facility.

This is Lupin's third plant that faced adverse USFDA actions. It's still in the process of resolving warning letters on Goa and Indore plants, received in November 2017.

To know more about the company, you can access to Lupin's Q3FY19 result analysis and Lupin's 2017-18 Annual Report Analysis on our website.

Lupin share price opened the day up by 0.4%.

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

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

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