Sensex Trades Marginally Lower; Hero MotoCorp and HDFC Top Losers

Tue, 28 May 12:30 pm

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Share markets in India are presently trading on a negative note. Sectoral indices are trading mixed with stocks in the telecom sector and capital goods sector witnessing selling pressure while IT stocks and energy stocks are trading in green.

The BSE Sensex is trading down by 63 points (down 0.2%), while the NSE Nifty is trading down by 18 points (down 0.2%). The BSE Mid Cap index is trading up by 0.2%, while the BSE Small Cap index is trading up by 0.3%.

The rupee is currently trading at Rs 69.62 against the US$.

Speaking of Indian benchmark indices, note that overall, the Sensex PE ratio has been in expansion mode over the last five years.

Between the election results of 2014 and 2019, the Sensex PE expanded by 52%.

The chart below shows the change in the Sensex price to earnings (PE) multiple over the last five years of Modi government.

Sensex Rally Driven by PE Expansion in Modi's First Term

What this means is that most of the gains in Modi's first term have come mostly from an expansion of valuation multiples and only partially due to earnings growth.

What are the implications for investors in Modi's second term?

Ankit Shah answers this question in one of the latest edition of The 5 Minute WrapUp. Here's an excerpt of what he wrote...

• In my view, what worked in Modi's first term may not necessarily work in the second one. Back in 2014, you could have put your finger on a random set of stocks, and there were good chances you would make money.
  
  But right now, the circumstances are quite different. The overall markets are trading at elevated valuation multiples. The economy has been showing signs of fatigue. The financial sector is still in a mess. Unemployment levels are high.
  
  For much of Modi's first term, the global markets were in a bull run. However, global economic conditions are not as favourable now. There are growing fears of an impending global slowdown. There has been an escalation in the US-China trade war.
  
  Given all these factors, do not expect the markets to have a broad-based bull run in Modi's second term.

With the elections done, the markets will now move based on earnings visibility, economic policies, global sentiments, and so on.

So, look out for the stocks that will rise fast when the tide of the market turns up.

Market participants are tracking Sun Pharma share price, Pfizer share price, and SpiceJet share price as these companies are set to announce their March quarter (Q4FY19) results today.

You can also read our recently released Q4FY19 Results: JSW Steel, Bata India, Karur Vyasa Bank, Abbott India.

Manpasand Beverages share price is witnessing selling pressure today on growing concerns over corporate governance. Shares of the company are locked in 20% lower circuit, continuing the downtrend for the second straight session.

As per an article in The Economic Times, a couple of independent directors at the Vadodara-based company resigned on Monday. The company also cancelled its scheduled board meet, where it was looking to consider and approve March quarter results.

Here's an excerpt from the article:

• The meet is now cancelled due to unavoidable circumstances and also due to want of quorum during the board meeting.
  
  This is after the Commissioner of Central GST and Customs carried out search and seizure proceedings at various premises of the company last week. The company's managing director Abhishek Singh, his brother Harshvardhan Singh and chief financial officer Paresh Thakkar were arrested.

Earlier, the stock was under inspection after Deloitte Haskins and Sells LLP resigned as its auditor in May 2018, days before its earnings announcement, saying that significant information was not shared by the company.

Moving on to the news from the pharma sector, Natco Pharma share price is in focus today after the company reported a decline in net profit for the second consecutive quarter.

Shares of the company hit a new low of Rs 482 in early trade today on back of the above news.

The company reported consolidated net profit at Rs 1.2 billion in Q4FY19. It had posted a profit of Rs 3 billion in the year-ago quarter.

Reports state that the decline was mainly due to lower revenue growth. Operational revenue declined 41% to Rs 4.6 billion against Rs 7.7 billion in the corresponding quarter of previous fiscal.

Earnings before interest, tax, depreciation and amortization (EBITDA) margin declined to 32.5% from 49.9% in the previous year quarter.

The company said that although the revenue had been flat, the marginal decline in profit was primarily due to write-off of Oseltamivir inventory by the company's marketing partner in the USA. The flu-season in USA was weaker than expected resulting in the write-off of this inventory valued at approximately US$ 5.5 million.

To know more about the company, you can read Natco Pharma's Latest Result Analysis on our website.

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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