Sensex Opens 349 Points Up; Capital Goods and Energy Stocks Rally

Fri, 24 May 09:30 am

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Asian share 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 down by 0.7%. US stocks slumped on Thursday as investors dumped shares of companies in growth and cyclical sectors, with energy and technology leading declines, on fears that the escalating US-China trade war would stymie global economic growth.

Back home, India share markets opened the day on a strong note after Election 2019 results gave clear mandate to the BJP led NDA government. The BSE Sensex is trading up by 349 points while the NSE Nifty is trading up by 112 points. The BSE Mid Cap index and BSE Small Cap index opened up by 0.4% and 0.3% respectively.

All sectoral indices have opened the day in green with capital goods and oil & gas stocks leading the pack of gainers.

The rupee is currently trading at 69.68 against the US$.

Speaking of elections and stock markets, it is interesting to see how the Sensex reacted in 2-3 days immediately after the election results were out over the years.

In 2004, it was expected that the BJP-led NDA combine would win, and the markets seemed to have factored that.

However, BJP's slogan then 'India Shining' and 'Feel Good Factor' failed to enthuse the people of India, and the reverse happened. The Congress-led UPA won the elections. The stock markets did not take this too well.

However, in 2009, the UPA won by a clear majority and the stock markets gave a big thumbs up. A lot was expected from the erstwhile PM Manmohan Singh at the time, and India's economy grew at a scorching pace since then.

However, it's in the second term of the UPA government that corruption, rot, and general apathy set in. The economy slowed down.

And the Modi-led NDA gained a thumping majority in 2014.

Indeed, in the run-up to the 2014 elections, the Sensex was already notching up gains, and the bull run continued for the rest of that year as well.

How the Sensex Reacted in Days Immediately After Election Results

This time, the BJP clinched a roaring victory just like it did five years ago. The Sensex briefly touched the 40,000 mark, paving the way for Sensex 100,000.

In the news from the global economy. The International Monetary Fund (IMF) has warned that, the escalation of trade tension between the US and China has the potential to disrupt the global supply chains and jeopardise the projected recovery in growth in 2019.

The warning came days after President Donald Trump imposed 25% tariff on US$ 200 billion worth of Chinese imports.

The world's two largest economies are locked in a trade war since Trump imposed heavy tariffs on imported steel and aluminium items from China in March last year, a move that sparked fears of a global trade war.

In response, China imposed tit-for-tat tariffs on billions of dollars' worth of American imports.

The trade war escalated after Trump on May 10 increased the import duty on Chinese products worth US$ 200 billion from 10% to 25%.

The IMF said that consumers in the US and China are unequivocally the losers from the trade tension.

At the global level, the additional impact of the recently announced and envisaged new US-China tariffs, expected to extend to all trade between the two countries, will subtract about one-third of a percentage point of global GDP in the short term, with half stemming from business and market confidence effects, the IMF said.

Failure to resolve trade differences and further escalation in other areas, such as the auto industry which would cover several countries, could further dent business and financial market sentiment, negatively impact emerging market bond spreads and currencies, and slow investment and trade, it said.

Noting that the US-China trade tensions have negatively affected consumers as well as many producers in both the countries, the IMF said the tariffs have reduced trade between the US and China, but the bilateral trade deficit remains broadly unchanged.

The impact on US producers with significant exposure to Chinese markets was also captured in stock market valuations. For instance, the equity price performance of US companies with high sales to China underperformed relative to the US businesses exposed to other international markets, after tariffs linked to the US$ 34 billion retaliation list by China were implemented, the IMF said.

According to the IMF, the gap narrowed at the beginning of 2019 with the trade truce, but it reopened again after the US tariff increase to 25% on the US$ 200 billion.

Trump has been demanding that China reduce the massive trade deficit which last year climbed to over US$ 539 billion. He is also pressing for verifiable measures for protection of intellectual property rights (IPR), technology transfer and more access to American goods to Chinese markets.

Moving on to the news from pharma sector. As per an article in a leading financial daily, Cipla has signed an agreement to acquire 26% stake on a fully diluted basis in AMPSolar Power Systems Private limited.

The cost of acquisition is Rs 129 million and post-acquisition AMPSolar will become an associate of Cipla.

The agreement is formed for the purpose of setting up a captive solar power project in Maharashtra.

The stock will be in focus today.

Meanwhile, Cipla reported a whopping 105% increase in its consolidated net profit at Rs 3.7 billion for the quarter ending March 2019 as compared to Rs 1.8 billion in the year-ago period.

The consolidated net sales rose 22% to Rs 42.7 billion as against Rs 35 billion in March 2018.

The company's board recommended a dividend of Rs 3 per share.

The board also approved plans to raise funds up to Rs 30 billion by issue of equity raises and another Rs 30 billion may be raised by issuing non-convertible debentures or bonds.

Cipla share price opened the day up by 0.8%.

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