Sensex Continues Momentum; Power Stocks Witness Buying

Tue, 18 Apr 11:30 am

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After opening the day on a positive note, Indian share markets have continued their momentum and are presently trading in the green. Sectoral indices are trading on a positive note with stocks in the power sector and metal sector leading the gains.

The BSE Sensex is trading up 251 points (up 0.9%) and the NSE Nifty is trading up 73 points (up 0.8%). The BSE Mid Cap index is trading up by 1%, while the BSE Small Cap index is trading up by 1.2%. The rupee is trading at 64.54 to the US$.

The Sensex is perched near 30,000 mark. The index is hovering around all-time high and the recent surge has made Indian stock markets expensive at current levels. However, that's not the case just for Indian stock markets. As per an article in the Business Standard, the valuation multiples for all the emerging markets, as backed by the price to earnings ratio, have expanded way above their historical averages.

On a comparative basis, the Sensex is placed third in the above list. This can be seen in the chart below:

India - The Third Most Expensive Emerging Market

The above rally is the result of increase in capital inflows into the emerging markets. However, the important question is: Do the above valuations reflect the real state of the economy?

We don't think so. As Richa stated in yesterday's edition of The 5 Minute WrapUp..."the current market valuations are not a reflection of reality. With economy struggling on many fronts, the valuations look unsustainable, unless there is an earnings recovery soon."

So unless the earnings growth catch up to the steep market expectations in the coming quarters, there aren't enough legs to sustain the current market valuations.

In other news, the World Bank yesterday said that the Indian economy will claw back to 7.2% growth this financial year and rise further to 7.5% in 2018-19.

However, the World Bank noted that significant risks to economic growth could emanate from fallout of notebandi on small and informal economy, stress in the financial sector and uncertainty in global environment.

Meanwhile, as per an article in the Economic Times, about 10% of the 60,000-plus people employed in telecom tower companies could lose their jobs over the next year.

This is the result of rapid consolidation among telecom service providers which hurts tenancies and revenue at the infrastructure firms. The consolidation has forced recruiters to sharply reduce their hiring in the above segment by up to 50%.

The above development will contribute to India's big unemployment crisis. It will also threaten India's demographic dividend.

One shall note that we have a big unemployment crisis which can derail the growth of the Indian economy.

However, the irony is that despite the above unemployment crisis, India faces severe staff shortage. The shortage ranges between 20% to 50% in all the crucial services i.e. defence, HRD, health, home, finance, and law.

As per Vivek Kaul's analysis, a little over 12 million individuals will keep joining the workforce every year in the years to come. This works out to around one million a month. And at this rate, the Indian workforce is expected to be larger than that of China by 2030.

The demographic dividend benefits a country if the government of the day is able to create the right environment in which jobs are created. And from what we see, we are failing miserably on this front.

But this is not the only crisis hitting India's economy now. To know more, refer to HYPERLINK "https://www.equitymaster.com/diary/india-in-crisis-2017-report.asp?email=%7bemailaddress%7d®src=939" \t "_blank"Vivek's special report.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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