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Sensex & Nifty Hit Record Highs; Are Stocks Expensive Now?
Mon, 24 Jul Closing

Share markets in India continued their upward climb in afternoon trade. At the closing bell, the BSE Sensex closed higher by 217 points. While, the NSE Nifty finished higher by 51 points. Meanwhile, the S&P BSE Midcap Index and the S&P BSE Small Cap Index both ended up by 0.3%.

Barring metal stocks, healthcare stocks and realty stocks, all sectoral indices finished the day in green with information technology sector and FMCG sector witnessing maximum buying interest.

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.

Asian equity markets finished mixed as of the most recent closing prices. The Hang Seng gained 0.53% and the Shanghai Composite rose 0.39%. The Nikkei 225 lost 0.62%. European shares fell today. The exporter-dominated German DAX index dropped 0.2%. The pan-European STOXX 600 index was down 0.1%, after falling 1% on Friday as the strong euro weighed on earnings.

The rupee was trading at Rs 64.45 against the US$ in the afternoon session. Oil prices were trading at US$ 46.07 at the time of writing.

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HDFC Bank share price surged 2% on reporting 20.2% increase in its net profit for the June quarter due to higher net interest income and other income. Net profit for the quarter increased to Rs 38.94 billion from Rs 32.39 billion a year ago.

Pharma stocks closed the day on a mixed note with Dishman Pharma and Orchid Pharma Ltd leading the gains. Lupin share price surged 2% before finishing the day on a flat note after it was reported that the company received final approval for its Fluocinonide Topical Solution USP, 0.05% from the United States Food and Drug Administration (USFDA).

The drug is a generic version of County Line Pharmaceuticals, LLC's Fluocinonide Topical Solution USP, 0.05%. It is indicated for the relief of the inflammatory and pruritic manifestations of corticosteroid-responsive dermatoses.

Reportedly, Fluocinonide Topical Solution USP, 0.05% had US sales of US$32.4 million, as per IMS MAT March 2017.

Meanwhile, Divi's Laboratories share price tumbled 4.7% after the company reported 41.5% fall in its net profit at Rs 1.77 billion for first quarter ended 30 June 2017 as compared to Rs 3.02 billion for the same quarter in the previous year.

Total revenue from operations of the company decreased by 17.67% at Rs 8.51 billion for Q1FY18 as compared Rs 10.34 billion for the corresponding quarter previous year.

Speaking of pharma space in India, according to a report by The Hindu Business Line, in spite of the prevailing challenges in the Indian pharma sector is expected to grow up to 45% by 2025 and 58,000 additional employment opportunities are likely to be created in the industry amid the job crisis in India.

Despite the capping of prices, notebandi and GST implementation, all of which are perceived to impact the pharma sector adversely, the industry will continue to grow. In fact, by 2020, the pharma market will be touching US$ 55 billion, with a CAGR of about 15.9%.

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Moving on to the news from the economy. Retaining its growth forecast of 7.2% for India for the current fiscal year, the International Monetary Fund (IMF), in its latest update report 'World Economic Outlook, July 2017' has stated that the country would grow at 7.7% in 2018-19, keeping growth rates forecast in line with the April 2017 forecast.

IMF further mentioned that even though activity in India slowed following the currency exchange initiative, the growth rate of 7.1% in 2016 was higher than anticipated due to strong government spending and data revisions. It added that the growth in 2016-17 would have been lower had the government not intervened in terms of capital expenditure.

It also said that despite China's growth projections being raised by a couple of notches, India's economy would still be the fastest growing among large economies. As per its projections, while India's economy is projected to grow in both 2017-18 and 2018-19, China's economy will expand at the same rate in 2017 at 6.7% as it did in 2016.

IMF further said that inflation in advanced economies remains subdued and generally below targets, while noting that it has also been declining in several emerging economies, such as Brazil, India, and Russia. Furthermore, the report kept its global growth projections unchanged for this and next year at 3.5% and 3.6% respectively.

And here's a note from Profit Hunter:

Divis Laboratories announced its Q1FY18 quarterly results on Saturday and as a result the stock plunged 5% for the day.

The stock topped out at Rs 1,381 in August 2016. It then traded in a downtrend to hit a low of Rs 533 in May 2017. The stock recovered smartly from this low and formed an inverse head and shoulder pattern on the daily chart. The RSI indicator also formed a bullish divergence with the price indicating a change in momentum.

The stock broke out of the inverse head and shoulder pattern early this month and went on to hit a high of Rs 760.

But after today's action, the stock is approaching the neckline of the inverse head and shoulder pattern, which usually acts as a support post-breakout.

So will the stock find support at the neckline of the inverse head and shoulder pattern or will it break the neckline to register a new 52-week low?

Divis Lab Plunges after Q1FY18 Result
Divis Lab Plunges after Q1FY18 Result 

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Feb 23, 2018 (Close)