Sensex Opens 200 Points Higher; Metal & Realty Stocks Lead the Gains

Tue, 27 Mar 09:30 am

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Asian stock markets are higher today bouncing back from strong losses in the previous session as trade tensions between the US and China appeared to ease. The Nikkei 225 is up 1.91% while the Hang Seng is up 0.90%. The Shanghai Composite is trading up 0.97%. Overnight, US markets closed in green.

Meanwhile, Indian share markets too have opened the day in green. BSE-Sensex is trading higher by 200 points and NSE-Nifty is trading higher by 51 points. S&P BSE Mid Cap is trading higher by 1.3% and S&P BSE Small Cap is trading up by 1.5%.

Gains are largely seen in metal stocks, capital goods stocks and realty stocks. The rupee is trading at Rs 65.06 against 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.

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.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

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.

In news from steel sector, as per an article in The Livemint, JSW Steel Ltd would invest up to US$500 million to expand its Texas operations through its US unit, as part of a Memorandum of Cooperation signed with the Texas Governor's office.

The governor has also approved a grant worth US$3.4 million from the Texas Enterprise Fund to JSW Steel (USA) Inc.

The capex plan, which will be completed by March 2020, includes setting up a melt manufacture contiguous plate and pipe facility in Texas. The investment comes at a time of rising concerns about an escalating trade war between US and other countries over tariffs.

Trade minister Suresh Prabhu said last week the country will bilaterally discuss import curbs on steel with US after President Donald Trump had pressed ahead with import tariffs on steel and aluminium products.

JSW Steel share opened the trading day up by 2.1% on the BSE.

Moving on to news from IPO segment, as per a leading financial daily, the Rs 40.17 billion initial public offering (IPO) of ICICI Securities could only manage 78% subscription on the last day of the issue on Monday.

However, including anchor allotment, the issue received a total of 87.9% subscription.

In a statement, the the company has successfully closed its proposed offer for sale (OFS) and has raised around Rs 35 billion. Out of this, around Rs 17.17 billion was raised from anchor investors.

The company's announcement meant it lowered the issue size to sail through. This is third subsidiary firm from the ICICI group to hit the market in past two years. The QIB portion was fully subscribed, but the quota for retail investors (88%) and non-institutional investors (33%) remained undersubscribed.

Overall, this was the fourth issue of the ICICI Group after ICICI Bank, ICICI Prudential Life and ICICI Lombard General Insurance.

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However, the market euphoria is something similar to what was seen in 2007-08. When everyone around you is clamoring to get a piece of the IPO pie, it makes sitting tight difficult. And, why should you sit tight when stocks like Avenue Supermart lets you pocket a cool 100% gain from day 1 of the listing?

History suggests that these cases are few and far between. More than 70% of the IPOs listed in 2007 and 2008 are in the red, even today when the Sensex is at an all-time high.

This allows us to stay on the fence when it comes to investing in IPOs. But it doesn't make sense to completely ignore this space. For every Reliance Power - like issue, there have been issues like Maruti, TCS, and Jubilant Foodworks Ltd (with returns over 4,000%, 1,000% and 500% respectively) that have created immense wealth for shareholders. A merit-based selection primarily including valuation, business, and management quality is the logical way to go about it.

In news from cryptocurrency market, Bitcoin began the week on a down note, declining as much as 8.7%, pushing the biggest cryptocurrency's decline for March to about 25%.

Bitcoin's price is back below US$8,000, a move that comes amid a broader decline in the global cryptocurrency market.

After reaching a record high of almost US$20,000 in December, Bitcoin has slumped about 60% as investors reconsider the prospects of the digital currency and regulators around the world increase scrutiny.

Twitter confirmed Monday it's banning the advertisements on its platform due to concern the content is often related to deception and fraud, according to a company spokesperson. The decision comes after Facebook Inc. banned cryptocurrency ads in January and Alphabet Inc.'s Google said it would do the same starting in June.

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

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