Sensex Gains Over 300 Points; Ashok Leyland Spurts on Strong Sales in June

Mon, 3 Jul 01:30 pm

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After opening the day on a positive note, share markets in India continued to trade higher following the rollout of Goods and Services Tax, the country's landmark tax reform. All sectoral indices are trading in green, with stocks in the FMCG sector & metal sector leading the gains.

The BSE Sensex is trading higher by 302 points (up 0.1%) while the NSE Nifty is trading higher by 89 points (up 0.2%). The BSE Mid Cap index is trading up by 0.9% and BSE Small Cap index is trading up by 1%. Gold prices, per 10 grams, are trading at Rs 28,363 levels. Silver price, per kilogram is trading at Rs 38,329 levels. Crude oil is trading at Rs 3,006 per barrel. The rupee is trading at 64.74 to the US$.

The markets are touching record highs every day. It makes sense to sit back and evaluate if the fundamentals are in place for such heady growth. When one looks at corporate earnings over the past 5 years, it paints a different picture.

Earnings Yet to Catch Up with Valuations

While valuation has reached dizzy heights, earnings are yet to catch up. Investors are hoping that earnings will eventually catch up with valuations. Even the slowdown on the economy due to the notebandi impact has been ignored.

With money from retail investors coming into the market at a steady pace, the general assumption amongst investors is that growth will eventually come and justify the premium valuations they've given to the markets. Perhaps investors are getting ahead of themselves.

Automobile stocks are trading in green with Escorts and Ashok Leyland leading the gains. Ashok Leyland share price rallied as much as 5.5% today after the auto major registered sales growth of 11% on a year-on-year (YoY) basis to 12,330 units for the month of June 2017.

It had suffered a decline of 8% in total sales during May 2017 on the back of the downslide in medium and heavy commercial vehicles.

During June 2017, the growth is led by light commercial vehicles at 29% with sales of 3,128 units.

The total sales in the April-June 2017 period stood at 28,495 as compared to 31,165 units in the year-ago period, declining by 9%. Further, the company's M&HCV sales in June 2017 was also up by 6%.

Notably, the company has, in recent years, expanded its network rapidly to cater to its wide range of customers. At the end of FY17, its network had expanded to 2,678 touch points with plans to grow it rapidly during FY18.

In another development, Two-wheeler major TVS Motor Company has reduced prices of its models by up to Rs 4,150 to hand down GST benefit to customers.

Hero MotoCorp has also announced its decision to cut prices by up to Rs 1,800 banking on the GST launch. The actual benefit varies from state to state, depending on pre- and post-GST rates.

Already, various automakers such as Maruti Suzuki, Toyota and Jaguar Land Rover have reduced prices to transmit the GST relief down the line.

TVS Motors share price is trading up by 0.4%.

Moving on to the news from stocks in engineering sector. As per an article in a leading financial daily, Bharat Heavy Electrical (BHEL) has entered into a Technology Collaboration Agreement with Kawasaki Heavy Industries, Japan for the manufacture of stainless steel coaches and bogies for metros.

The agreement covers establishing state-of-the-art design, engineering and manufacturing facilities at BHEL, India using Japanese technology. Significantly, it will also entitle BHEL for all technology advances and upgrades as well.

The Agreement has been signed in the backdrop of our Prime Minister's "Make in India" initiative, and will enable BHEL to produce stainless steel coaches indigenously and help in bringing technology upgrades in its expanding portfolio.

For BHEL, the alliance is a key step in its efforts to diversify from a maker of gas turbines, transformers and generators. It will also expand the company's business of supplying electric and diesel locomotives, and other systems to the Indian Railways.

BHEL share price is presently trading up by 0.3%.

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