Sensex Opens Above 40,000-Mark; Coal India Rallies on Strong Q4 Result

Fri, 31 May 09:30 am

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Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.8% while the Hang Seng is down 0.3%. The Shanghai Composite is trading down by 0.1%. US stocks showed signs of stabilizing on Thursday, but gains were kept in check by conflicting comments on trade talks from President Donald Trump and Beijing that reinforced concerns about a potentially lengthy battle harming global growth.

Back home, India share markets opened marginally higher. The BSE Sensex is trading up by 213 points while the NSE Nifty is trading up by 58 points. The BSE Mid Cap index and BSE Small Cap index opened up by 0.4% and 0.2% respectively.

Barring power and realty stocks, all sectoral indices have opened the day in green with metal and oil & gas stocks leading the pack of gainers.

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 one of the latest 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.

Moving on, the rupee is currently trading at 69.77 against the US$.

The Indian rupee gained in the early trade today. It opened higher by 11 paise at 69.76 per dollar versus Thursday's close 69.87.

On May 30 the rupee continued its slide on the third consecutive day as it was close marginally lower at 69.87 on the back of strong dollar.

Rupee is expected to open higher against the dollar on the back of Brent crude's decline to a near-three-month low.

Meanwhile, Trump announcement of tariffs on Mexican imports is expected to keep the rupee's advance in check, the reports noted.

Washington threatened to impose tariffs on imports from Mexico. Trump, in an announcement reported that a 5% tariff would be levied on all goods from Mexico with effect from June 1 and tariffs would remain in place till Mexico takes effective action to alleviate the flow of migrants.

Moreover, the announcement warned that tariffs would go up to 25% by October if Mexico did not take sufficient action.

Volatility for the currency could remain low ahead of important economic numbers that will be released. Broadly, trade war concern is keeping most market participants on the edge.

Speaking of currencies, Vijay Bhambwani, editor of Weekly Cash Alerts, tells you the main reasons why not to trade commodities and currencies the same way you would trade equities. Here's an excerpt of what he wrote...

• Currencies are traded in pairs and the most liquid is the USDINR. Currencies are traded in four decimal points just as bonds are. The international derivative traders association has indicated that forex may be traded in 6 decimals in the coming few years.
  
  It takes months sometimes for the currency pair to pass the next round figure, say from 70 to 71.
  
  Can you really trade commodities and currencies alike or for that matter, equities and currencies alike? Definitely not!

To know more, you can read Vijay's entire article here: Is Trading in Equities, Commodities, and Currencies the Same?

Moving on to the news from the mining sector. Coal India Limited (CIL) concluded financial year 2019 with a whopping 148% growth in consolidated net profit at Rs 174.6 billion.

The country's largest coal mining company had posted consolidated net profit of Rs 70.4 billion in the financial year 2018.

Consolidated total revenue of the company increased to Rs 1,054.2 billion from Rs 916.3 billion reported during the last fiscal, registering a growth of 15%.

For the FY19, the coal production stood at 606.9 million tonnes versus 567.4 million tonnes in the previous year. Raw coal off-take rose to 608.1 million tonnes versus 580.3 million tonnes during the fiscal ended March 2019.

During January-March quarter, consolidated net profit jumped over four-fold to Rs 60.2 billion as against Rs 13 billion in the year-ago period, helped by higher sales and lower expenses.

Consolidated sales of the coal miner rose 7.9% year-on-year to Rs 267 billion.

Total expenses declined to Rs 214.7 billion during Q4FY19 over Rs 274 billion in Q4FY18.

Coal India share price opened the day up by 2.5%.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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