Sensex Opens in Green; GDP Grows 7.7% in Q4

Asian share markets are mixed today as Japanese and Hong Kong shares rise. The Nikkei 225 is up 0.2% while the Hang Seng is up 0.1%. The Shanghai Composite is trading down by 0.5%.

Back home, India share markets opened the day on a positive note. The BSE Sensex is trading higher by 100 points while the NSE Nifty is trading up by 23 points. The BSE Mid Cap index and BSE Small Cap index both opened the day down by 0.1% & 0.2% respectively.

Sectoral indices have opened the day on a mixed note with metal stocks and stocks in the IT sector witnessing buying interest. While, power stocks & energy stocks have opened the day in red. The rupee is trading at 67.26 to the US$.

In news about the economy, India's GDP grew by a strong 7.7% in the fourth quarter of FY18. This is the fastest growth since the demonetisation saga back in November 2016.

Despite a robust growth in the quarter, for the full year 2017-18, GDP growth fell to 6.7%, the lowest in the four years of the current government is set to release the GDP numbers for the quarter, and full year today. Ahead of the official numbers, global ratings agency, Moody's downgraded its forecast for the country. India's GDP is set to grow by 7.3% in 2018, according to a Moody's report, a cut from its previous forecast of 7.5%. However, it maintained its 7.5% growth forecast for 2019.

According to the global ratings major, despite the moderation in March, industrial production growth averaged 6.2% in the January-March period, up from 5.9% in the previous quarter.

The report states that growth should benefit from an acceleration in rural consumption, supported by higher minimum support prices and a normal monsoon.

The private investment cycle will continue to make a gradual recovery, as twin balance-sheet issues -- impaired assets at banks and corporates -- slowly get addressed through deleveraging and the application of the Insolvency and Bankruptcy Code.

The official numbers beat most estimates as the agriculture, manufacturing and construction sectors the bedrock of the economy, all witnessed robust growth in the fourth quarter.

The Indian economy grew 6.6% in the last fiscal as it battled the lingering effects of demonetisation in 2016. Teething issues related to implementation of GST, which hampered operations of small and medium sized enterprises and exporters, also contributed to growth moderation.

GDP Growth Getting Back on Track

India's economy seems to have gotten its steam back, now with consistent GDP growth above the 7% mark.

The growth rate for 2017-18 was higher than the government's first and second advance estimates - at 6.5% and 6.6%- and in sync with what the International Monetary Fund, the World Bank and the Economic Survey had estimated. This is the last piece of macroeconomic data before the Reserve Bank of India reviews the monetary policy in June.

Notably, with strong GDP numbers this quarter, India has retained the fastest growing economy tag, surpassing China.

0.4% while the CAC 40 was down by 0.5%

In news from stocks in the aviation sector. The government's attempt to sell a stake in Air India drew a blank again, after it did not receive any bids for the national carrier. Notably, the stake sale did not receive any bids even after extending the deadline twice.

Government hopes to call for fresh bids in the next couple of weeks, after the matter is taken up by the Administrative Mechanism (AM), comprising the Ministers of Finance, Civil Aviation and Roads.

The intention is to complete the sale of a 76% stake in the airline before the end of the financial year.

The government on 1 May extended the privatization process of Air India by a fortnight and clarified various knotty issues identified by potential bidders.

Notably, Jet Airways ruled out a bid for debt-laden national carrier Air India citing unfavorable terms of the offer.

The announcement came just days after rival IndiGo pulled out of the race to acquire Air India's operations meaning the government now has no clear frontrunner in the sale campaign.

Once the country's monopoly airline, Air India has slowly lost market share to new low-cost private players in one of the world's fastest-growing airline markets.

Air travel has recorded double-digit growth for 40 consecutive months, thanks to low fares, the addition of new flights/destinations, and overall growth in the economy.

What's foreseeable for India's aviation traffic in 2018 is some pressure on the back of the consistent rise in crude oil prices. Earlier this month, Brent crude oil briefly breached US$80 per barrel and touched its highest level since December 2014. Crude prices have been driven up by production curbs in OPEC nations and Russia, as well as by robust demand on the back of healthy global economic growth.

Oil prices are closely monitored by the Indian air carriers, as aviation turbine fuel is their single largest input cost. A sharp rise in the cost of fuel puts pressure on margins, and consequently an increase in air fares.

Although air travel is becoming the new normal, investors need to understand the industry dynamics before buying up aviation stocks.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

Sensex Remains Positive; Energy & IT Stocks Gain

Stock markets in India continue to trade in green following Asian stocks that rebounded from a two-month trough. Market participants will also focus on GDP data to be released later in the day today. Sectoral indices are trading mixed with stocks in the power sector and realty sector witnessing maximum selling pressure. Gains are largely seen in energy sector and IT sector.

The BSE Sensex is trading up by 157 points and the NSE Nifty is trading up by 46 points. Meanwhile, the BSE Mid Cap index is trading down by 0.2% while, the BSE Small Cap index is trading down by 0.3%. The rupee is trading at 67.63 to the US$.

In the news from the pharma sector. As per an article in a leading financial daily, Lupin has launched Solosec (secnidazole) 2g oral granules in the US market. The company had received an approval from the United States Food and Drug Administration (USFDA) earlier.

The company's Solosec (secnidazole) 2g oral granules is a 5-nitroimidazole antimicrobial agent indicated for the treatment of bacterial vaginosis (BV) in adult women.

Solosec, the first new oral antibiotic to treat BV in more than a decade, is designed to deliver a full course of therapy in a single 2g oral dose and is the first and only single-dose oral therapy for BV.

It is the most common vaginal infection in the US among women of childbearing age.

To know more about the company, you can access to Lupin's latest result analysis and Lupin stock analysis on our website.

Did you know the BSE Healthcare Index is down 20% over the past three years? During the same period, the BSE Sensex is up 21%.

The BSE Healthcare Index has underperformed the Sensex

And this was a sector they called 'evergreen'.

Have Investors boarded a plane that's about to crash? Or is it just turbulence on the way to a smooth and safe landing?

It's important to understand the core issues. Regulatory problems for pharma companies have increased over the past few years. The frequency of visits as well as quality expectations have increased a lot.

The intensity of competition has also increased. Faster approvals of drugs have led to price erosion for generic players.

While we expect the pain to continue in the short-term, the long-term picture still looks bright.

Stricter norms and pricing pressure will ensure only quality players remain. Companies with strong R&D facilities and quality compliant plants will have an edge over the others.

Those are the only pharma stocks you should be looking at.

And even among those, only three of them offer enough margin of safety today.

Get access to the safe stocks here.

Lupin share price was trading down by 0.5% at the time of writing.

Moving on to the news from the economy. Credit rating agency, ICRA in its latest report has said that cement production in India registered a growth of 6.3% at 298 million tonne (MT) in the financial year 2018, as compared to 280 MT in FY17, with the bulk of production growth was reported in the second half of FY18.

It noted that the growth in output was mainly because of better demand in the key markets and the base effect of the demonetisation-driven low demand during the corresponding period of last year.

Rating agency has stated that going by the prevalent trend, the growth momentum is expected to continue in FY19 and the industry is likely to witness a growth of around 6%. It pointed out that this is primarily on the back of pick-up in the affordable and rural housing segments and infrastructure - primarily road and irrigation projects.

Besides, it said that the FY19 budget also provides support in this direction with higher rural credit, increased allocation for rural, agricultural and allied sectors along with continued focus on the PMAY and infrastructure investments.

The report further indicated that the cement production increased by 10.6% and 18.2% respectively in the December and March quarters of 2017-18.

It said that the trend was supported by demand in Andhra Pradesh and Telangana, driven by irrigation, low-cost housing and infrastructure projects.

Besides, it noted that in April 2018, rising demand resulted in an increase in cement prices in the Ahmedabad and Hyderabad markets respectively by Rs 20/a bag and Rs 10/a bag, respectively. However, it said that rising supplies resulted in prices remaining range-bound in the Kolkata market.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

Sensex Opens Firm; Coal India & HDFC Bank Top Gainers

Asian share markets are broadly higher today with shares in China leading the region. The Shanghai Composite is up 1.1% while Hong Kong's Hang Seng is up 0.6% and Japan's Nikkei 225 is up 0.4%. US stocks ended higher on Wednesday, and the S&P 500 and Dow registered their biggest daily percentage gains since 4 May, on signs of easing political turmoil in Italy and as a surge in oil prices boosted energy stocks.

Back home, India share markets opened the day on a firm note. The BSE Sensex is trading up by 132 points while the NSE Nifty is trading up by 38 points. The BSE Mid Cap index opened up by 0.5% while BSE Small Cap index opened up by 0.4%.

Barring IT stocks and energy stocks, all sectoral indices have opened the day in green with metal stocks and consumer durables stocks witnessing maximum buying interest. The rupee is trading at 67.63 to the US$.

In stock markets, do valuations play an important role in the returns that you get from stocks?

We, at Equitymaster believe so. Sarvajeet Bodas, Research Analyst at Equitymaster did a decade long comparison of the Sensex versus the its price to earnings ratio...and it certainly seems to suggest so.

We will see how earnings drove the returns of the Sensex.

Price to Earnings (PE) is basically the price that you pay for earnings. A higher PE implies expensive valuations. We found that the Sensex has fallen sharply whenever its PE moved above 20.

Conversely, PE levels below 15 have led to a sharp subsequent rally.

Sensex Falls When PE Rises Above 20

Such strong co-relation also proves that ultimately, it's valuations that drive future returns in the stock market.

You would thus be well served by focusing on fundamentals and valuations while ignoring the noise of the market. Tanushree Banerjee, editor of The 5 Minute WrapUp, can guide you in this endeavor.

Coal India share price gained over 3.5% in the morning trade as investors reacted to the results for March quarter posted by the firm, which included a one-time gratuity payout.

Power stocks opened the day on a mixed note with Tata Motors & Force Motors leading the losses. As per an article in a leading financial daily, with an aim to leverage its tower infrastructure, state-run Power Grid Corporation of India (PGCIL) is planning to offer at least 10-20% of its 1.5 lakh tower assets to telecom operators.

The company has already approached the Central Electricity Regulatory Commission (CERC) for approval on the same.

Since the government has emphasized on reducing consumption of diesel to reduce pollution, the telecom operators will have a good option in power grid's towers.

Telecom regulator Trai has recommended 40% reduction in carbon emission in the telecom network by 2022-23, with base year being 2011-12.

The regulator has also suggested that the government should pass all the benefits granted under various schemes for using renewable energy technologies to telecom operators.

Power Grid has set a capex of Rs 250 billion for the current financial year and plans to raise around 70% of it through debt, especially domestic bonds.

For its future business, the state-owned electric utilities company is also looking at opportunities in electric vehicle charging stations, battery storage, railway electrification and telecommunication works with Railtel, the reports noted.

Meanwhile, Power Grid recently reported a consolidated net profit of Rs 81.98 billion in FY18, a 10% increase over Rs 74.5 billion in FY17. Its total income stood at Rs 304.3 billion, up from Rs 262.8 billion in FY17.

To know more about the company, you can access to Power Grid's latest result analysis and Power Grid stock analysis on our website.

And to get more updates on share market, click here.

Power Grid Corporation's share price fell 0.1% in the opening session.

Moving on to the news from the cement sector. Lenders of Binani Cement Ltd. approved the resolution plan submitted by UltraTech Cement Ltd., as part of the insolvency resolution process.

The Kumar Mangalam Birla-backed company beat a rival consortium that included Dalmia Bharat Ltd. and a Bain Capital-backed fund. The resolution plan is now subject to approval by the National Company Law Tribunal.

Reportedly, financial creditors led by Edelweiss Asset Reconstruction Company Ltd. voted to accept UltraTech's Rs 79.5 billion offer as the highest bid.

If approved, the acquisition will boost UltraTech's capacity to 116.15 million tonnes per annum. It will also give the Aditya Birla Group company access to Binani Cement's large reserves of high quality limestone, the reports noted.

The announcement comes after the NCLT had asked lenders to reconsider UltraTech Cement's bid after they had rejected it earlier. UltraTech Cement was not allowed to revise its bid for Binani Cement since lenders had agreed to not entertain the second highest bidder in the case. UltraTech Cement tried multiple times to revise its bid for Binani Cement, however, the creditors did not consider it.

Thereafter, in a parallel deal, UltraTech signed an agreement with Binani Industries Ltd. to buy its cement assets for Rs 72.7 billion and said it will seek termination of the insolvency process. This decision was subject to lenders agreeing to withdraw from the NCLT. However, this agreement did not go anywhere since lenders declined to settle out of court.

In its 2 May order, the NCLT said that the decision of the creditors' panel to deny UltraTech an opportunity to be heard once its resolution plan was rejected is unfair, unjust and against the very objective of the IBC.

It stated that the resolution professional and the CoC are duty bound to ensure value maximisation for shareholders of Binani Cement. The lenders' argument that UltraTech had sent an offer on email and did not adhere to the timelines and process is not substantive, the NCLT ruled.

Ultratech Cement share price opened the day on a flat note.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.