Sensex Ends 300 Points Up; ITC & Tata Motors Top Gainers

Fri, 8 Dec Closing

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Indian share markets extended rally in afternoon trade. The buying momentum was backed by hopes that the ruling Bharatiya Janata Party (BJP) would win critical state elections in Gujarat beginning this weekend, while automakers gained on reports of an expected price hike next year.

At the closing bell, the BSE Sensex closed higher by 301 points. While, the NSE Nifty finished higher by 99 points. Meanwhile, the S&P BSE Midcap Index and S&P BSE Small Cap Index ended up by 1% & 0.9% respectively. All sectoral indices finished the day in green with FMCG stocks and metal stocks leading the pack of gainers.

Overseas, Asian stock markets finished broadly higher today with shares in Japan leading the region. The Nikkei 225 is up 1.39% while Hong Kong's Hang Seng is up 1.19% and China's Shanghai Composite is up 0.55%. European markets are broadly higher today with shares in Germany leading the region. The DAX is up 1.06% while France's CAC 40 is up 0.63% and London's FTSE 100 is up 0.28%.

The rupee was trading at Rs 64.46 against the US$ in the afternoon session.

Sensex has been making new highs every day. Back in March 2016, we had predicted Sensex to touch 40,000 within a 3 to 4 year timeframe. At this pace, it seems like Sensex might get there sooner rather than later.

Interestingly, among all major indices, the Indian stock markets have given the best returns in 2017.

Global Index Returns in 2017

The current run seems to extrapolate all good news into the future and expects the ride to be smooth and consistent. But, history has shown that markets rarely work that way.

While valuation has reached dizzy heights, investors are hoping that earnings will eventually catch up with valuations.

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.

So, should you stay away from the market? Or swim with the tide?

Here's an excerpt of what Rahul Shah, Co-head of Research, wrote in one of the edition of The 5Minute WrapUp:

• "Indian retail investors should not blindly follow FPIs in and out of stocks. It is far better to take advantage of the volatility caused by their selling to enter good quality stocks for the long-term."

In the news from the economy. As per the report by credit rating agency, ICRA, has predicted a long-term growth rate of 10-12% CAGR for Indian auto component industry and the industry is expected to grow by 9-11%.

The main drivers for growth in FY18 will be the domestic passenger vehicle (PV) and two-wheeler (2W) segments.

The report said that the auto components industry will grow relatively higher than underlying automotive industry in the medium to long term on the back of technological advancement and regulatory measures.

Further, the rating agency also expects healthy growth in domestic original equipment manufacturers (OEMs) segment, especially in 2W and PV industry, during FY18.

Moreover, the sub-segments like light commercial vehicles, motorcycles and tractors will benefit form expected recovery in rural income.

Besides, the report found that most of the auto ancillaries have witnessed improvement in their revenue growth during Q2 FY2018, driven by higher realization in the backdrop of steady increase in commodity prices. Further, in view of rising prices of commodity, the agency noted that this is putting pressure on the profitability of companies and tyre manufacturers were the worst hit due to sharp volatility in rubber prices.

In such an environment, it makes sense for investors to be selective while buying stocks. Focus on value and the underlying fundamentals of the business. Then, they need not worry about the market.

So, what is key to identifying potential multibagger stocks? How does one pick them at the right time and ride them to their full potential? How many multibaggers do you really need to achieve the big riches that you desire?

Most importantly, are there any stocks right now that could turn out to be multibaggers? Click here to know everything that you need to know right now about mutlibagger stocks...

Moving on to the news from automobiles sector. Tata motors share price surged 2.2% on the reports that the company's global wholesales in November 2017, including Jaguar Land Rover, were at 1,12,473 units, higher by 22%, over November 2016. The growth was mainly driven primarily by the introduction of the new Land Rover Discovery and the Range Rover Velar, the reports noted.

Global wholesales of all Tata Motors' commercial vehicles and Tata Daewoo range in November 2017 were at 40,845 units, higher by 51%, over November 2016.

Further, global wholesales of all passenger vehicles in November 2017 were at 71,628 units, higher by 10%, compared to November 2016.

Global wholesales for Jaguar Land Rover were 54,244 vehicles. Jaguar wholesales for the month were 12,287 vehicles, while Land Rover wholesales for the month were 41,957 vehicles.

Meanwhile, within the auto index, Tata Motor's stock has appreciated the most since November 2008. The stock has posted a gain of 1180% since November 2008. Other stocks too such as Maruti Suzuki, Bajaj Auto, Mahindra and Mahindra have gained more than 1000% since then.

The main reason leading to this surge is the booming consumption story. Driving aspirations of the rising middle class have pushed up car sales in the world's second most populous country. Further, benign interest rates and lower oil prices too have supported this consumption boom.

Not only this, value migration is pretty much evident in the auto sector. Value migration creates opportunity. At Equitymaster, we are firm believers of this structural change and love to look out for industries going through these changes.

Having said that, valuation too plays a big part in the trajectory of the stock prices and currently the valuations of the auto majors appears to be a bit stretched. Past performance is no validity of the stocks performing well going ahead and hence investors should pay utmost heed to the valuation before investing in the auto majors.

While, it will be unfair to paint all companies in the sector with the same brush, as per Rahul Shah, co-head of Research, one should thoroughly check the financials and wealth creation abilities of such companies.

At Equitymaster, our approach of selecting safe stocks can comfortably turn few of them into multibbaggers in few years. Click here to know everything that you need to know right now about safe stocks...

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