Sensex Opens Strong; Banking and Energy Stocks Gain the Most

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Asian stock markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 1.1% while the Hang Seng is up 0.9%. The Nikkei 225 is trading up by 0.6%. US stocks rose on Friday, led by technology companies, as a report on progress in US-China trade talks lifted sentiment, pushing the S&P 500 to its best week since November.

Back home, India share markets opened on a strong note. The BSE Sensex is trading up by 254 points while the NSE Nifty is trading up by 80 points. The BSE Mid Cap index opened up by 0.3% while BSE Small Cap index opened down by 0.3%.

Except healthcare stocks and automobile stocks, all sectoral indices have opened in green with oil & gas stocks and bank stocks leading the pack of gainers.

The rupee is currently trading at Rs 68.95 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. India's trade deficit narrowed to a 17-month low of US$9.6 billion in February as merchandise imports fell on the back of lower crude oil prices.

The trade deficit had stood at US$9 billion in September 2017.

According to data released by the commerce ministry, exports growth was relatively tepid at 2.4% in February, while imports contracted 5.4% in dollar terms.

In rupee terms, however, exports and imports expanded at 13.3% and 4.7% respectively, mostly because of depreciation in the rupee. So far this year, the rupee has weakened 2.1%, the worst performer among Asian currencies.

Cumulatively, during the first 11 months of the fiscal year 2019 (April-February), exports and imports grew at 8.9% and 9.8%, respectively, while the trade deficit expanded to US$165.5 billion from US$148.6 billion during the same period a year ago.

Other macro-indicators including factory output and the gross domestic product (GDP) also point toward a slowdown in overall economic activity.

The index of industrial production grew 1.7% in January, while gross domestic product in the December quarter slowed to a five-quarter low at 6.6%.

Moving on to the news from pharma sector. As per an article in a leading financial daily, Cadila Healthcare has received final approval for USFDA for Valsartan and Hydrochlorothiazide Tablets in various strengths.

Reportedly, the drug is used to treat high blood pressure.

It will be manufactured at the group's formulations manufacturing facility at Moraiya, Ahmedabad.

The group now has 256 approvals and has so far filed over 350 ANDAs since the commencement of the filing process in FY04.

In another development, Lupin has been cautioned by the USFDA that its Somerset (New Jersey) facility may be subject to regulatory or administrative action and that it may withhold approval of any pending applications or supplements in which this facility is listed.

The company's subsidiary Novel Laboratories Inc has received a letter from the US health regulator, classifying the inspection conducted at its Somerset (New Jersey) facility in December 2018, as Official Action Indicated (OAI).

'Official Action Indicated' means approvals of pending applications or supplements from this site maybe withheld.

Cadila Healthcare share price & Lupin share price opened the day up by 0.3% & 5% respectively.

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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