Sensex Ends 248 Points Higher; Power and Metal Stocks Witness Buying

Mon, 27 May Closing

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Indian share markets continued their momentum and ended their day on a strong note today.

Gains were largely seen in the power sector, metal sector, and capital goods sector.

At the closing bell, the BSE Sensex stood higher by 248 points (up 0.6%) and the NSE Nifty closed higher by 80 points (up 0.7%).

The BSE Mid Cap index ended up by 1.1%, while the BSE Small Cap index ended the day up by 1.8%.

Asian stock markets finished on a mixed note as of the most recent closing prices. The Hang Seng stood down by 0.2% and the Nikkei was trading up by 0.3%, while the Shanghai Composite was trading up by 1.3%.

European markets were trading on a positive note. The FTSE 100 was up by 0.6%. The DAX was trading up by 0.3%, while the CAC 40 was up by 0.1%.

The rupee was trading at 69.58 to the US$ at the time of writing.

Speaking of Indian benchmark indices, note that overall, the Sensex PE ratio has been in expansion mode over the last five years.

Between the election results of 2014 and 2019, the Sensex PE expanded by 52%.

The chart below shows the change in the Sensex price to earnings (PE) multiple over the last five years of Modi government.

Sensex Rally Driven by PE Expansion in Modi's First Term

What this means is that most of the gains in Modi's first term have come mostly from an expansion of valuation multiples and only partially due to earnings growth.

What are the implications for investors in Modi's second term?

Ankit Shah answers this question in today's edition of The 5 Minute WrapUp. Here's an excerpt of what he wrote...

• In my view, what worked in Modi's first term may not necessarily work in the second one. Back in 2014, you could have put your finger on a random set of stocks, and there were good chances you would make money.
  
  But right now, the circumstances are quite different. The overall markets are trading at elevated valuation multiples. The economy has been showing signs of fatigue. The financial sector is still in a mess. Unemployment levels are high.
  
  For much of Modi's first term, the global markets were in a bull run. However, global economic conditions are not as favourable now. There are growing fears of an impending global slowdown. There has been an escalation in the US-China trade war.
  
  Given all these factors, do not expect the markets to have a broad-based bull run in Modi's second term.

With the elections done, the markets will now move based on earnings visibility, economic policies, global sentiments, and so on.

So, look out for the stocks that will rise fast when the tide of the market turns up.

GAIL share price was in focus today as the company reported a 9.9% year-on-year (YoY) rise in profit at Rs 11.2 billion for March quarter.

Revenue rose 21.6% YoY to Rs 187.6 billion compared with Rs 154.3 billion in the corresponding quarter last year.

On a quarter-on-quarter (QoQ) basis, the company reported a 33.2% decline in its net profit.

The company also announced bonus issue in the ratio of 1:1. This implies the issuance of one share for every one share held.

The board of the company also recommended a final dividend of Rs 1.77 per share.

BHEL share price was also in focus today as the company posted a 49.3% YoY rise in net profit at Rs 6.8 billion for the quarter ended March 2019.

Sales of the company stood almost flat at Rs 98.4 billion in Q4FY19 over Rs 98.3 billion in the same period last year.

Other expenses declined to Rs 10.8 billion for the quarter ended March 2019 against Rs 18.9 billion in the corresponding quarter last year.

Profit before tax increased 12.7% YoY to Rs 12.8 billion during the quarter.

The board of the company recommended a final dividend of Rs 1.20 per share for the financial year 2018-19.

Apart from the above, market participants were also tracking Abbott India share price and Natco Pharma share price as these companies announced their March quarter (Q4FY19) results today.

You can also read our recently released Q4FY19 Results: Bajaj Auto, IndusInd Bank, JSW Steel, Bata India, Karur Vyasa Bank.

Market participants were closely tracking Tata Steel share price as the stock of the company witnessed buying interest and closed its session up by 5.7% on the BSE.

In the news from the pharma space, market participants were tracking Glenmark Pharma share price as the company said it has received final approval from the US health regulator for antiplatelet agents Aspirin and extended-release Dipyridamole capsules.

The approved product is a generic version of Aggrenox capsules of Boehringer Ingelheim Pharmaceuticals Inc.

As per the data, the company said the Aggrenox capsules, 25 mg/200 mg market achieved annual sales of approximately US$ 165.6 million in the 12-month period ended March 2019.

The company also reported its current portfolio consists of 155 products authorised for distribution in the US and 58 Abbreviated New Drug Application (ANDA's) pending approval with the USFDA.

Speaking of drug approvals, note that Indian pharma companies catering to the US markets are breathing a sigh of relief. After being adversely affected by import bans and the suspension of new drug approvals from manufacturing facilities in the past three years, there has been a sharp pick-up in new drug approvals.

Faster approvals expedite the commercialisation of product pipelines of domestic pharma companies spurring growth. At the same time, however, it has raised the intensity of competition resulting in pricing pressures.

The price erosion has been further compounded by a consolidation among US distributors and the decline in the number of products going off-patent over the past few years.

In other words, acceleration in generic drug approvals is like a double-edged sword. The growth boost can be quickly offset by the ensuing pricing pressures.

Pharma companies that invest in creating a pipeline of complex generics or building competencies in alternative dosage forms are better equipped to tackle the changing dynamics in the US generics market.

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

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