Asian share markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.4% while the Hang Seng is up 0.1%. The Shanghai Composite is trading down by 1.1%. Overnight, US stock market indices closed mostly higher, with S&P 500 rising 0.3% to 2,782.
Back home, India share markets opened the day on a negative note. The BSE Sensex is trading down by 46 points while the NSE Nifty is trading down by 12 points. The BSE Mid Cap index and BSE Small Cap index both opened on a flat note.
Sectoral indices have opened the day on a mixed note with capital goods stocks and energy stocks witnessing maximum selling pressure. While, healthcare stocks & consumer durables stocks have opened the day in green. The rupee is trading at 67.69 to the US$.
Meanwhile, Government bonds (G-Secs) slipped on selling pressure from banks and corporates and the overnight call money rates ended lower due to lack of demand from borrowing banks amid comfortable liquidity in the banking system.
The 7.17% 10-year benchmark bond maturing in 2028 declined to Rs 94.87 from Rs 94.96, while its yield inched up to 7.94% from 7.93%.
The earnings yield of the market vis-a-vis risk-free 10-year government bond yield is a very important indicator for equity markets.
The earnings yield is calculated as the net profit for the last 12-month period, divided by market capitalisation. In other words, it is the inverse of the PE Ratio.
This ratio can be used as a tool to identify how cheap or expensive the stock market is relative to the debt market, other any other possible investments.
The chart below illustrates the same.
The Gap Widens Between Bonds and Stocks
Lately, the divergence between bond yields and earnings yield has increased. This means stocks have become expensive compared to bonds.
Historically, there is a negative correlation between stock prices and the spread of bond yields over earnings yields.
The bond yields are now higher by 364 basis points (bps), compared to the average earnings yield of the BSE Sensex.
With this, the equity market might see more selling in the coming weeks, as there is still a large gap between the yield on the 10-year government bond and corporate earnings yield.
Pharma stocks opened the day on a mixed note with Orchid Pharma & Divis Laboratories leading the gainers. As per an article in a leading financial daily, Dr. Reddy's Laboratories Ltd. has received final approval from the US Food and Drug Administration (USFDA) and is launching Buprenorphine and Naloxone Sublingual Film, 2 mg/0.5 mg, 4 mg/1 mg, 8 mg/2 mg, and 12 mg/3 mg.
It is a therapeutic equivalent generic version of Suboxone (buprenorphine and naloxone) sublingual film, in the United States market. The product is being launched with an approved Risk Evaluation and Mitigation Strategy (REMS) Program.
Buprenorphine and naloxone are used to treat adults with opioid addiction. Buprenorphine helps suppress withdrawal symptoms caused by discontinuation of opioid drugs, and naloxone reverses and blocks the effect of opioids. This combination of medications is used as part of a complete treatment program including prescription monitoring, counseling, and psychosocial support.
This approval is an important milestone for the company to bring affordable generic medicines to market for patients. Our company will continue to look for opportunities to acquire and manufacture assets that accelerate access to innovative and affordable medicines for patients.
The Suboxone brand had US sales of approximately US$1.9 billion MAT for the most recent twelve months ending in April 2018 according to IMS Health.
Dr. Reddy's share price opened the day up by 2.8%.
Moving on to the news from the automobiles sector. As per an article in a leading financial daily, Maruti Suzuki India (MSI), has stopped the production of the diesel version of its premium hatchback, the Ignis, due to low demand.
The company, which launched the model in January last year, has sold more than 72,000 units so far. The auto maker registered average monthly sales of over 4,500 units of the Ignis during the January-May 2018 period.
The Ignis is retailed through the company's premium Nexa sales channel, and helps Maruti Suzuki in expanding its range and presence, the company stated. The Ignis was the third model to be sold through the Nexa dealerships, after the S-Cross and the Baleno.
With the launch of the Ignis, the company consciously tried to shed its image of a small car maker for a typical middle class Indian family.
While the Ignis has a spacious cabin and premium quality interiors, including its SmartPlay infotainment system, the steep pricing of the diesel variants (from Rs 0.63 million to Rs 0.81 million, ex-showroom, Delhi) was a deterrent to sales. In addition, there is a noticeable shift in customer preference for petrol vehicles over the years.
The Ignis will now be available only with the 1.2-litre petrol engine mated to either a manual or AMT gearbox. The 1.3-litre diesel versions (both manual and AMT) have been discontinued. The petrol variants are priced between Rs 0.5 million and Rs 0.7 million.
This year, Maruti Suzuki has two new planned launches-the upgraded Ciaz and the all-new Ertiga.
To know more about the company, you can access to Maruti Suzuki's latest result analysis and Maruti Suzuki stock analysis on our website.
Maruti Suzuki share price opened the day down by 0.1%.
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