Sensex Opens Firm; Coal India & HDFC Bank Top Gainers

Thu, 31 May 09:30 am

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Asian share markets are broadly higher today with shares in China leading the region. The Shanghai Composite is up 1.1% while Hong Kong's Hang Seng is up 0.6% and Japan's Nikkei 225 is up 0.4%. US stocks ended higher on Wednesday, and the S&P 500 and Dow registered their biggest daily percentage gains since 4 May, on signs of easing political turmoil in Italy and as a surge in oil prices boosted energy stocks.

Back home, India share markets opened the day on a firm note. The BSE Sensex is trading up by 132 points while the NSE Nifty is trading up by 38 points. The BSE Mid Cap index opened up by 0.5% while BSE Small Cap index opened up by 0.4%.

Barring IT stocks and energy stocks, all sectoral indices have opened the day in green with metal stocks and consumer durables stocks witnessing maximum buying interest. The rupee is trading at 67.63 to the US$.

In stock markets, do valuations play an important role in the returns that you get from stocks?

We, at Equitymaster believe so. Sarvajeet Bodas, Research Analyst at Equitymaster did a decade long comparison of the Sensex versus the its price to earnings ratio...and it certainly seems to suggest so.

We will see how earnings drove the returns of the Sensex.

Price to Earnings (PE) is basically the price that you pay for earnings. A higher PE implies expensive valuations. We found that the Sensex has fallen sharply whenever its PE moved above 20.

Conversely, PE levels below 15 have led to a sharp subsequent rally.

Sensex Falls When PE Rises Above 20

Such strong co-relation also proves that ultimately, it's valuations that drive future returns in the stock market.

You would thus be well served by focusing on fundamentals and valuations while ignoring the noise of the market. Tanushree Banerjee, editor of The 5 Minute WrapUp, can guide you in this endeavor.

Coal India share price gained over 3.5% in the morning trade as investors reacted to the results for March quarter posted by the firm, which included a one-time gratuity payout.

Power stocks opened the day on a mixed note with Tata Motors & Force Motors leading the losses. As per an article in a leading financial daily, with an aim to leverage its tower infrastructure, state-run Power Grid Corporation of India (PGCIL) is planning to offer at least 10-20% of its 1.5 lakh tower assets to telecom operators.

The company has already approached the Central Electricity Regulatory Commission (CERC) for approval on the same.

Since the government has emphasized on reducing consumption of diesel to reduce pollution, the telecom operators will have a good option in power grid's towers.

Telecom regulator Trai has recommended 40% reduction in carbon emission in the telecom network by 2022-23, with base year being 2011-12.

The regulator has also suggested that the government should pass all the benefits granted under various schemes for using renewable energy technologies to telecom operators.

Power Grid has set a capex of Rs 250 billion for the current financial year and plans to raise around 70% of it through debt, especially domestic bonds.

For its future business, the state-owned electric utilities company is also looking at opportunities in electric vehicle charging stations, battery storage, railway electrification and telecommunication works with Railtel, the reports noted.

Meanwhile, Power Grid recently reported a consolidated net profit of Rs 81.98 billion in FY18, a 10% increase over Rs 74.5 billion in FY17. Its total income stood at Rs 304.3 billion, up from Rs 262.8 billion in FY17.

To know more about the company, you can access to Power Grid's latest result analysis and Power Grid stock analysis on our website.

And to get more updates on share market, click here.

Power Grid Corporation's share price fell 0.1% in the opening session.

Moving on to the news from the cement sector. Lenders of Binani Cement Ltd. approved the resolution plan submitted by UltraTech Cement Ltd., as part of the insolvency resolution process.

The Kumar Mangalam Birla-backed company beat a rival consortium that included Dalmia Bharat Ltd. and a Bain Capital-backed fund. The resolution plan is now subject to approval by the National Company Law Tribunal.

Reportedly, financial creditors led by Edelweiss Asset Reconstruction Company Ltd. voted to accept UltraTech's Rs 79.5 billion offer as the highest bid.

If approved, the acquisition will boost UltraTech's capacity to 116.15 million tonnes per annum. It will also give the Aditya Birla Group company access to Binani Cement's large reserves of high quality limestone, the reports noted.

The announcement comes after the NCLT had asked lenders to reconsider UltraTech Cement's bid after they had rejected it earlier. UltraTech Cement was not allowed to revise its bid for Binani Cement since lenders had agreed to not entertain the second highest bidder in the case. UltraTech Cement tried multiple times to revise its bid for Binani Cement, however, the creditors did not consider it.

Thereafter, in a parallel deal, UltraTech signed an agreement with Binani Industries Ltd. to buy its cement assets for Rs 72.7 billion and said it will seek termination of the insolvency process. This decision was subject to lenders agreeing to withdraw from the NCLT. However, this agreement did not go anywhere since lenders declined to settle out of court.

In its 2 May order, the NCLT said that the decision of the creditors' panel to deny UltraTech an opportunity to be heard once its resolution plan was rejected is unfair, unjust and against the very objective of the IBC.

It stated that the resolution professional and the CoC are duty bound to ensure value maximisation for shareholders of Binani Cement. The lenders' argument that UltraTech had sent an offer on email and did not adhere to the timelines and process is not substantive, the NCLT ruled.

Ultratech Cement share price opened the day on a flat note.

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