Sensex Opens Marginally Lower; Telecom Stocks Drag

Thu, 14 Nov 09:30 am

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Asian share markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is flat while the Hang Seng is down 0.7%. The Nikkei 225 is trading down by 0.2%.

Meanwhile, the Dow Jones Industrial Average and the S&P 500 posted record closing highs on Wednesday helped by a big jump in Walt Disney shares, but the Nasdaq fell as stocks were kept in check by fresh uncertainty over US-China trade relations.

Back home, India share markets opened marginally lower. The BSE Sensex is trading down by 57 points while the NSE Nifty is trading down by 15 points. The <>BSE MidCap index has opened the day down by 0.3%, while the <>BSE SmallCap index has opened up by 0.2%.

Sectoral indices have opened the day on a mixed note with telecom stocks and FMCG stocks witnessing selling pressure. IT stocks and consumer durable stocks are trading in green.

The rupee is currently trading at 72.19 against the US$.

Speaking of the Sensex touching record high, how expensive is the Sensex at current levels? What has the trend been in recent years?

It would be interesting to see how the valuation of the index has moved over the last five years.

The chart below maps the price to earnings ratio of the Sensex from October 2014 to now.

How Pricey Is the Sensex Now?

Here's what Ankit Shah wrote about this in a recent edition of The 5 Minute WrapUp...

• It is worth noting that the Sensex has gained 44% over the last five years, compounding at an annual rate of 7.6% (excluding dividends).
  
  Not quite impressive.
  
  During the same period, the Sensex price to earnings ratio has mostly been in a rising trend, except some intermittent declines.
  
  Between October 2014 and now, the gain in the Sensex price to earnings ratio is 42%. That means that the gains in the index have mostly come from expansion in the valuation multiple, and just meagerly from increases in earnings.

So, before taking the current market bullishness for granted, do weigh in the fact that the Sensex is quite expensively priced.

Also, amid the mood swings of Mr. Market witnessed lately, Tanushree Banerjee in the video below talks about the Rebirth of India phenomenon and how 3 specific trends are racing ahead even in these gloomy times.

Tune in to find out more...

In the news from the economy. Retail inflation touched a 16-month high of 4.62% in October due to higher food prices.

Notably, this is the first month since August 2018 that retail inflation has breached the 4% medium-term target set by the Reserve Bank of India. Meanwhile, inflation in food basked rose to 7.9% in October.

Retail inflation, calculated on the basis of Consumer Price Index (CPI), skyrocketed on the back of high vegetable prices. Last month saw exorbitant onion and tomato prices due to unseasonal rains, disruption in supply chain and acquisition restrictions on traders.

Vegetables saw the highest inflation rate of 26.1% in October, followed by pulses and products at 11.7%. Meat and fish showed an inflation rate of 9.8%, whereas eggs got costlier by 6.3%. Remaining items in the food basket reported inflation rates in the range of 1.3% to 4.1%.

The Reserve Bank of India (RBI) mainly factors in the retail inflation while deciding the bi-monthly monetary policy. The central bank has reduced policy rates five times in a row by 135 basis points to 5.15%.

Higher inflation rate might keep the RBI from going ahead with another policy rate cut in its next monetary policy meeting.

Industrial output in September fell by 4.3% due to poor show across all sectors, data released earlier this month showed. The indices of industrial production for the mining, manufacturing and electricity sectors showed de-growth of 8.5%, 3.9% and 2.6%, respectively in the month of September 2019.

Moving on to the news from the currencies space. The rupee on Wednesday breached the 72-mark to hit an over two-month low and the Sensex slumped 229 points on disappointment over weak macro numbers.

The markets were closed on Tuesday and resumed on a negative note on Wednesday on weak IIP and inflation numbers.

At the inter-bank forex markets, the rupee cracked 62 paise to hit an over two-month low of 72.09 against the dollar because of the weak macro data amid apprehensions over the US-China trade war.

A strong dollar overseas also weighed on sentiments. The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.02% to 98.32.

The domestic unit opened on a weak note at 71.75 against the dollar and it breached the 72-level to touch the day's low of 72.10. It later settled at 72.09, registering a fall of 62 paise over its previous close.

This is the lowest closing level for the rupee since September 4.

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 trader's 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?

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

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

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