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Sensex Continues to Trade on a Firm Note; Force Motors Surges 5.8%
Wed, 21 Mar 01:30 pm | Karan Janani, TM Team

Indian share markets continued to witness buying momentum in the noon session. Gains were largely seen in realty stocks, consumer durables stocks and software stocks. Metal stocks traded in red.

The BSE Sensex is trading higher by 180 points and the NSE Nifty is trading up by 45 points. Meanwhile, the BSE Mid Cap index is trading up by 0.5% & the BSE Small Cap index is up by 0.6%. The rupee is trading at 65.20 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.

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In news from automobile sector, Ashok Leyland share price is trading on an encouraging note (up 1.4%) after it was reported that the company has bagged an order from the Institute of Road Transport (IRT), Tamil Nadu for supply of 2000 Passenger Chassis and 100 of Fully built Small Buses to various STUs in the state of Tamil Nadu.

The order size is about Rs 3.21 billion. This order is scheduled to be supplied during the first half of 2018-19.

In another development, as per an article in The Livemint, Force Motors Ltd has inked a joint venture (JV) with MTU Friedrichshafen GmbH-a subsidiary of industrial giant Rolls-Royce Power Systems AG of Germany.

The JV will develop, manufacture and market MTU's Series 1600 engines, which have various applications in power generation gensets and passenger rail cars with an underfloor drive system, among others.

The move is being seen as a larger diversification strategy under which Force Motors is looking to manufacture high-quality and high-technology products.

Both entities will invest over a cumulative Rs 3 billion in the first phase to transfer the manufacturing facility from Germany to Chakan and enhance research and development capabilities. Firodia envisions the revenue visibility of the JV to close at around Rs 10 billion per year over the next few years.

Force Motors share price was trading up by 5.8% at the time of writing.

In news from the economy, raising concerns over employment generation in the country, the former Reserve Bank of India's (RBI) Governor Raghuram Rajan has said that India can move up from the 7.5% growth but that is not enough to create employment for about 12 million people coming into the labour market every year.

He explained that the country's growth can move up to maybe 10%, provide some kind of source of demand for the work. He also observed that India can do that but there is need to work on it.

On the reforms in the country, Rajan said that they are happening but more slowly than one would wish and that's potentially the cost of getting political agreement. Noting that the world has become less receptive to exports, he said, 'So if India becomes a manufacturing giant overnight, who's going to buy its stuff? So, India needs to think about its pathway of growth, it will be different from China's.'

On how quickly India can achieve 10% growth, former RBI Governor said that could happen after the general elections next year because reforms would now be put off. He added that reforms are likely to be put on the shelf till the next general elections but expressed hope that the country will move up to a higher plane of growth thereafter.

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