Sensex Opens Higher; Metal Stocks Lead

Fri, 17 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 0.6% while the Hang Seng is up 0.8%. The Nikkei 225 is trading flat.

Meanwhile, the S&P 500 dropped on Thursday, pulled lower by Microsoft Corp and Apple Inc, as elevated levels of unemployment claims heightened concerns about the economic toll from rising coronavirus cases.

Back home, Indian share markets opened on a positive note.

The BSE Sensex is trading up by 203 points. The NSE Nifty is trading up by 52 points.

Meanwhile, the BSE Mid Cap index has opened up by 0.6%.

BSE Small Cap index is also trading higher by 0.4%.

Except IT stocks, all sectoral indices are trading in green.

BSE Metal index is witnessing maximum buying interest, with over 1.7% gains.

Moving on, the rupee is currently trading at 75.17 against the US$.

Gold prices are currently trading down by 0.8% at Rs 48,773.

Moving on to the stock specific news...

Dmart is among the top buzzing stocks today after the company reported a sharp 34% fall in revenues in the June quarter (Q1FY20).

The stock has fallen below its qualified institutional placement (QIP) issue price of Rs 2,049 per share.

Avenue Supermarts shares hit an over three-month low yesterday, trading at its lowest level since 25 March 2020.

The near-term outlook remains challenging given the uncertain scenario and various limitations on store operations due to strict lockdowns enforced by local authorities, which would significantly impact footfalls.

The month of July is being impacted by the second phase of lockdown, with nearly 20% of stores being closed once again.

The Non-Grocery category is operating at double-digit like to like (LTL) decline. Thus, there is risk of slow recovery, which could extend well beyond 1HFY21.

Meanwhile, the company's revenue for the quarter de-grew 33% year on year (YoY) to Rs 38.8 billion. High cost of operations and weak sales led EBITDA (earnings before interest, taxes, depreciation and amortization) margins to contract sharply by 740 bps YoY to 2.9%.

Profit after tax declined 87.6% YoY to Rs 401 million.

Avenue Supermarts share price opened the day down by 1.7%.

Moving on to another news. The Bombay High Court dismissed Emami's plea challenging a single bench's order directing the Kolkata-based company to provide seven days prior notice before initiating legal proceedings against Hindustan Unilever or claiming interim relief from the company over the use of trademarks.

While challenging the ruling of the single bench yesterday, Emami also approached the Calcutta High Court to restrain Hindustan Unilever from using the trademark 'Glow & Handsome.'

Emami stated that, it had launched the trademark 'Glow and Handsome' before Hindustan Unilever announced changes to the names of its products.

Hindustan Unilever said on July 2 it was rebranding its skincare products to 'Glow & Lovely' for women and 'Glow & Handsome' for men. Emami stated that it was evaluating legal action against HUL for renaming its men's cream to 'Glow & Handsome.'

How this pans out going forward remains to be seen. We will keep you updated on developments from this space.

HUL share price opened the day up by 0.8%

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."

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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