Sensex Opens Higher; Realty Stocks Rally

Thu, 9 Jul 09:30 am

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Asian stock markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.2% while the Hang Seng is up 0.2%. The Nikkei 225 is trading up by 0.2%.

US stocks rose yesterday, and the Nasdaq hit a record closing high, supported by technology shares as early signs of an economic rebound offset concern about further lockdowns due to a jump in coronavirus cases across the country.

Back home, Indian share markets opened higher.

The BSE Sensex is trading up by 176 points. The NSE Nifty is trading up by 43 points.

Meanwhile, the BSE Mid Cap index has opened up by 0.4%.

BSE Small Cap index is also trading higher by 0.3%.

Except consumer durables stocks, all sectoral indices are trading in the green.

BSE Realty is witnessing maximum buying interest.

Moving on, the rupee is currently trading at 75.02 against the US$.

Gold prices are currently trading up by 0.7% at Rs 49,159.

Gold prices today jumped to Rs 48,700 from Rs 48,450 per 10 grams.

On MCX, August gold futures jumped 0.7% to Rs 49,159 per 10 grams. Silver July futures also climbed to Rs 51,382 per kilogram.

Gold futures in the US had crossed theUS $1,800-an ounce mark earlier, but for the first time in 8 years, even the spot price was above US$1,800.

The international bullion was trading higher for the fourth straight session on expectations of more stimuli from the Federal Reserve to combat the effect for the second wave of Covid-19 cases.

Cases in the US have crossed the 3-million mark.

Indian gold futures hit an all-time high of Rs 49,045 per 10 grams on Wednesday, taking gains to 25% in 2020 so far after they rallied by a quarter in the whole of 2019.

Moving on to the stock specific news...

Nestle India is among the top buzzing stocks today.

As per an article in a leading financial daily, Nestle India plans to focus on core categories, including milk & nutrition, chocolates & confectionery and coffee & beverages to explore growth and expansion opportunities in these segments.

The company believes that during this time and in the post COVID-19 world, consumers would seek trust, quality, intervention of science and technology, better nutrition and better immunity for the family.

These are all areas where the company has core competence and strength and will continue to work on the product offerings catering to such needs, the company stated.

In addition, the company has made a foray into new products like breakfast cereals business under the brand name NESPLUS, Nestle Health Science business, which are witnessing satisfactory performance.

On the company's production capacity and continuous supply of products, the company stated that all eight factories of the company are operational with an average of about 80% of the manufacturing capacity.

Nestle share price opened the day up by 0.5%.

In another news from FMCG sector, Hindustan Unilever Ltd's (HUL) has got a temporary relief from the Bombay High Court after Emami Ltd was told to give HUL seven days of advance notice before initiating legal proceedings on its trademark "Glow and Handsome".

Note that, HUL had moved the court after Emami said it would take legal action against the company as it already owns "Emami Fair and Glow" brand.

HUL had recently dropped the word "fair" from its skin cream, replacing it with "Glow" - Glow & Lovely for women and Glow & Handsome for men.

How this pans out going forward remains to be seen.

HUL share price opened the day down by 0.1%

Speaking of bluechip stocks like HUL and Nestle, an average investor knows that stocks like Asian Paints, HUL, and Nestle are the bluest of the blue chips and will continue to have good long-term prospects.

But are these stocks trading at high multiples because the market is lacking in any definite standard of valuation?

The chart below will perhaps help us solve this mystery.

Three Blue Chips Trading at Significant Premium to the Sensex

The blue chips like Asian Paints, HUL, and Nestle have all diverged from the Sensex in their PE multiples. In fact, the gap right now is the highest it has been in years. On an average, all three are trading at a premium to 2.5x to 3x as compared to the Sensex PE multiple.

But is the premium as high as 3x justified?

As per our co-head of Research, Rahul Shah, either ways, the current premium to Sensex or other companies looks too large for comfort to him.

Here's what he opines:

• "While I cannot predict what will happen in the near term, there is a strong possibility these stocks may not perform as strongly in the upcoming decade as they have done in the past.
  
  The last 10 years have been wonderful for these stocks. All three are up anywhere between 7x to 9x.
  
  But my sense is that the leadership will change in the next decade. We may have to bet on different blue chips if we want market beating performance.
  
  On what possibly could be these stocks, my guess is as good as yours for now."

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