Sensex Opens Over 300 Points Down; Realty and Metal Stocks Drag

Mon, 25 Mar 09:30 am

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Asian stock markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 1% while the Hang Seng is down 1.7%. The Nikkei 225 is trading down by 3.2%. Wall Street stocks sold off sharply on Friday, with all three major US stock indices posting their biggest one-day percentage declines since 3 January, as weak factory data from the United States and Europe led to an inversion of US Treasury yields.

Back home, India share markets opened on a negative note. The BSE Sensex is trading down by 343 points while the NSE Nifty is trading down by 96 points. The BSE Mid Cap index opened down by 0.3% while BSE Small Cap index opened down by 0.1%.

Barring power stocks, all the sectoral indices have opened the day in red with realty stocks and metal stocks leading the losers.

The rupee is currently trading at 69.12 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 today's 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. Finance Minister Arun Jaitley said that the government had exceeded its disinvestment target of Rs 800 billion for 2018-19 by Rs 50 billion, taking the proceeds to Rs 850 billion.

The Department of Investment and Public Asset Management (DIPAM) has crossed the disinvestment target for the second year in a row.

On Friday, Power Finance Corp completed the acquisition of the government's 52.6% stake in Rural Electrification Corp for Rs 145 billion. The fifth tranche of the Central Public Sector Enterprise Exchange Traded Fund (CPSE ETF) also closed on Friday, clocking in Rs 95 billion.

This translated to Rs 240 billion worth of transactions realised in a day.

In 2017-18, DIPAM had raised Rs 1 trillion compared to a budgeted target of Rs 725 billion. The bulk of that was realised from ONGC's acquisition of Hindustan Petroleum.

The target for 2019-20 stands at Rs 900 billion.

As of February 28, the Centre had garnered Rs 564.7 billion. Before Friday's receipts of Rs 240 billion, DIPAM had, in March, garnered Rs 10 billion from the strategic sale of Dredging Corp to a consortium of four ports and Rs 20 billion from the sale of enemy shares.

The government has also completed two initial public offerings (IPOs) of Mazagon Docks and MSTC this month.

For the fiscal year, DIPAM heavily depended on its marquee ETFs, CPSE and Bharat 22. While Rs 187.3 billion has been garnered from two fund offerings of the Bharat 22 ETF this fiscal, Rs 265 billion has come in from the CPSE ETF, including the latest offering.

Besides, firms like ONGC, Oil India, BHEL, Nalco and other PSUs have carried out buybacks, which have resulted in disinvestment revenue of about Rs 100 billion. Other smaller acquisitions have also taken place.

These include NBCC's purchase of HSCC, and WAPCOS' acquisition of NPCC. Some other IPOs this year include IRCON, RITES, Garden Reach Shipbuilders, and Mishra Dhatu Nigam. The big 'offer for sale' was for a 3% stake in Coal India, worth Rs 52.2 billion.

Moving on to other news. As per an article in a leading financial daily, India's foreign exchange (forex) reserves increased by US$3.6 billion during the week ended 15 March.

According to the Reserve Bank of India's (RBI) weekly statistical supplement, the overall forex reserves rose to US$405.6 billion from US$402 billion reported for the week ended 8 March.

India's forex reserves comprise Foreign Currency Assets (FCAs), gold reserves, Special Drawing Rights (SDRs) and India's reserve position with the International Monetary Fund (IMF).

On a weekly basis, FCAs, the largest component of the forex reserves, edged higher by US$3.5 billion to $377.8 billion.

Besides the US dollar, FCAs consist of 20-30% of the other major global currencies.

The RBI's weekly data showed that the value of the country's gold reserves rose by US$38.9 million at $23.4 billion.

The SDR value inched up by US$5.9 million to US$1.46 billion, while the country's reserve position with the IMF grew by US$12.1 million to US$2.99 billion.

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

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