Sensex Plunges 500 Points; Metal & Energy Stocks Continue to Fall

Fri, 16 Mar Closing

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Indian share markets continued to witness further selling pressure in the afternoon session with financial and energy stocks taking the brunt as fears of a trade war due to the imposition of US tariffs preyed on global markets.

At the closing bell, the BSE Sensex closed lower by 509 points and the NSE Nifty finished lower by 165 points. The S&P BSE Mid Cap finished down by 1.1% while S&P BSE Small Cap finished down by 1%.

We generally refer to PE or price to earnings ratio to gauge whether the market is undervalued or overvalued. If we go by this ratio, the Indian market is clearly in overvaluation territory.

There is still another ratio, which is frequently used to evaluate the valuations. The market capitalization to GDP ratio. It is one of Buffett's favourite indicators of broader market value. The market cap of all the listed companies in the country divided by the gross domestic product (GDP) of the country gives us this ratio.

Market Cap to GDP Ratio Close to 100%

The idea behind this ratio is simple. Stock prices are derived from expected earnings for corporates and GDP represents revenue of the country. This gives investors an estimate of whether the two are moving in tandem. A ratio above 100% shows overvaluation and one below 50% shows that the market may be undervalued.

Even this ratio is showing valuations reaching its peak levels. India's market cap to GDP ratio reached 95%. This ratio was more than 100% after the 2007 bull run. Stock prices had seen a significant meltdown after that amid the global financial crisis.

Asian stock markets finished lower today with shares in China leading the region. The Shanghai Composite is down 0.65% while Japan's Nikkei 225 is off 0.58% and Hong Kong's Hang Seng is lower by 0.12%. European markets are mixed today. The DAX is up 0.35% while the FTSE 100 gains 0.17%. The CAC 40 is off 0.09%.

Rupee was trading at Rs 64.87 against the US$ in the afternoon session. Oil prices were trading at US$ 61.33 at the time of writing.

Moving on to news from engineering sector. Larsen & Toubro's (L&T) construction arm -- L&T Construction and Dedicated Freight Corridor Corporation of India (DFCCIL) have signed contract worth Rs 28.64 billion for Eastern Dedicated Freight Corridor.

The Railways Strategic Business Unit of L&T Construction's Transportation Infrastructure Business has signed a major contract with DFCCIL. The EPC order involves construction of 222 Route Km of a single-track corridor from Khurja to Pilkhani in Uttar Pradesh.

L&T share price finished the day down by 2.1% on the BSE.

In news from PSU banks, Punjab National Bank (PNB) share price finished up by 0.3% after it was reported that the bank has approved issuance of Non-convertible secured/unsecured debentures (NCDs) aggregating upto an amount Rs 80 billion in tranches.

In another development, PNB detected yet another fraud at Mumbai branch which is at the centre of India's biggest banking scam. In this case, PNB's Brady House branch - fraudulently - issued Rs 90 million of Letters of Undertaking (LoUs) to Chandri Papers and Allied Products.

This comes a month after the second largest bank reported the biggest banking scam of over Rs 110 billion - initially, which later turned out to be a whopping Rs 136 billion fraud.

Telecom stocks finished the day on a mixed note with ITI Ltd share price and MTNL share price leading the losses.

Bharti Airtel share price finished the day down by 0.6% after it was reported that the The Telecom Regulatory Authority of India (Trai) has pulled up Bharti Airtel Ltd for failing to comply with tariff reporting requirements by not informing it about certain segmented tariffs offered to consumers to retain them.

As per an article in The Livemint, Trai has sought responses from Airtel to queries ranging from circle-wise launch date of these tariffs, criteria for classification of consumers availing these tariffs and whether these were reported to the regulator.

The new norms on pricing released by Trai on 16 February also state that in case of violation of tariff reporting requirements, an operator can be penalised Rs 5,000 for every day of delay, subject to a maximum of Rs 2 lakh.

In news from the economy, emphasizing on efforts being taken by the government to boost manufacturing in the country, Minister of Commerce & Industry, Suresh Prabhu has said that India could become US$5 trillion economy by 2025, provided that there is consistent growth in manufacturing, services and agricultural sectors.

Prabhu underlined key role of the private sector to create new business models and strategies and leverage new technologies in order to fuel growth in the Indian economy and gave assurance of government's support to it, noting that government will act as the facilitator in this process.

Besides, he said that the government is focusing on twelve Champion Sectors with a view to drive manufacturing growth and to create employment opportunities in India. He added that these sectors have potential to become global champions and drive double digit growth in manufacturing.

Further, heads of industry bodies CII, FICCI, IFC, NASSCOM and NitiAayog, have expressed need to focus on various issues like technological disruptions, challenges due to climate change, positive use of India's demographic dividend, conscious effort to make India's manufacturing sector a part of global value chain and recognizing the importance of small and medium scale enterprises to fuel India's growth story.

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