Daily Market View: Still on course for a rise

But bears are swiping again and the bulls are beginning to look tired

The market witnessed a subdued trading session today on dismal global cues but oil & gas stocks gained on the news of the government's decision to decontrol petrol prices. The Sensex closed at 17,574, down by 155 points (0.8%) and the Nifty ended lower at 5,269, down 51 points (1%). The bourses started the day on a weak note, taking cues from Asian markets. Trading was range-bound with the indices sliding sharply in the afternoon session.

Asian markets were down for a fourth straight session on Friday on concerns of tighter financial regulations ahead of the weekend G-20 meeting in Canada. Key benchmark indices in China, Singapore, Hong Kong, Japan, Taiwan and South Korea were down by 0.2% to 1.9%. Indices in Indonesia and Singapore rose by 0.2% to 1.1%. 

Wall Street was down on Thursday on concerns over consumer weakness and stringent financial regulations. The Dow was down 145.6 points (1.41%) to 10,152.8. The S&P 500 was down 18.3 points (1.68%) to 1,073.7. The Nasdaq was down 36.8 points (1.6%) to 2,217.4.

China's ministry of commerce said that exporters need not fear about the free float of the yuan. The country said on Saturday that it would once again allow the yuan to move more freely after having kept the currency more or less pegged to the dollar for two years to provide stability for exporters during the global downturn.

Back home, the government has decided to increase petrol prices and hiked prices of other fuels. A panel of ministers increased the petrol price by Rs3.5 per litre, while kerosene prices would rise by Rs3 a litre. Diesel prices will rise by Rs2 per litre and will be freed up in the future. Cooking gas prices have been raised by Rs35 a cylinder.

The government said that the monsoon rainfall will be 102% of the long-term average. The southwest monsoon, which is nearly 10 days behind its normal schedule over north India, is expected to strengthen with the formation of a low-pressure area in the Bay of Bengal.

Foreign institutional investors were net buyers of stocks worth Rs1,154 crore on Thursday. Domestic institutional investors were net sellers of equities worth Rs894 crore. 

MIC Electronics (up 3.1%) has entered into a collaboration with Indian Oil Corporation (IOC) for study and development of combined solar and LED light-source based products as well as projects for a foray into green and energy-efficient technologies.

The board of Kemrock Industries and Exports (down 1.5%) has approved the conversion of 9,11,268 warrants into equal number of equity shares of Rs10 each upon exercise of option by RPM International Inc, US out of the total 16 lakh warrants held by it.

GMR Infrastructure (up 0.5%) has won the bid to build, operate, modernise and expand the Male International Airport (MIA), Maldives-one of the fastest-growing airports in the region. MIA includes a sea-plane port also. The mandate is for the next 25 years.

Reliance Natural Resources (up 3.3%) and Reliance Industries today signed a revised Gas Supply Master Agreement (GSMA). RNRL will now take appropriate steps requesting the government of India for expeditious allocation of natural gas to facilitate implementation of the deal.

Shareholders of Marathon Nextgen Realty (down 0.9%), at the Extra-ordinary General Meeting (EGM) held on 25th June, accorded authority to the board to capitalise Rs6.32 crore out of the amount standing to the credit of the general reserve for the issue of bonus shares in the proportion of one equity share of Rs10 each for every two shares held.

IDBI Bank (down 0.6%) has received a letter from the government of India, dated 22nd June, conveying readiness to infuse Rs3,119.04 crore by way of preferential allotment of equity to enable the bank to maintain a Tier-1 CRAR of 8% to meet its targeted growth.


“I didn’t want to be a banker; I thought I would do Chartered Accountancy”

For a long time, the only way a middle-class Indian could dream of owning a home was to try his...

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Industry growth lags behind soaring valuations

Valuations of most sectors have jumped substantially during the past financial year, but operating growth has failed to justify the rise

During the financial year 2009-10, several sectors of the economy rebounded from the downturn brought about by the financial crisis of 2008. While this recovery was mostly tentative, stock markets responded with typical vigour and optimism, sending valuations of companies soaring.

But has this surge in valuation been justified by the growth exhibited by the various industries? Not quite-which should be an object lesson for those who believe in trying to find a close correlation between corporate fundamentals and market prices.

Take for instance, the retail sector, which was one of the worst-affected during the downturn, and is still picking up the pieces. Between March 2009 and March 2010, the sector has seen its market valuation surge dramatically. It is now valued at 75 times its annualised operating profit, while actual growth in operating profit has shrunk by 45% during the same period.

The telecom sector has also become expensive, with a valuation of 25 times annualised operating profit. Although its market capitalisation has remained flat between March 2009 and 2010, a 66% reduction in operating profit growth during the last financial year has skewed its valuation unfavourably.

The sugar industry has also fallen on rough times, after a meteoric rise in valuations barely until six months ago. With sugar prices receding dramatically, operating profits have fallen 25% during financial year 2009-10. Sector valuation, on the other hand, still remains high at six times annualised operating profit.
Other sectors that didn't record growth sufficient to justify high valuations were petrochemicals, office equipment, plastics, engineering, software and IT services.

The petrochemicals industry saw an operating profit growth of just 3% in the last financial year, yet its valuations jumped 107%. Similarly, office equipments and plastics industries recorded growth in operating profit of 16% and 14% respectively, while their valuations belied the growth, rising by 98% and 131% respectively. The engineering-electricals-electronics industry turned in a reduction in operating profit by 2% during the year. Despite this, valuations soared 113% during the same period.

On the other hand, some sectors where operating profit growth has justified growth in valuations are auto components, chemicals, paints, paper and paper products, steel products, textiles, lifestyle and leisure. The auto components industry has ridden piggyback on the revived demand for automobiles, reporting a rise in operating profit of 75%. Similarly, steel products, chemicals and paper & paper products industries have shown robust performance, with operating profit growth of 144%, 75%, and 46% respectively. However, valuations still remain attractive at 4.2 times, 5 times and 2.4 times annualised operating profit respectively. The textiles, lifestyle and leisure industries are also in the same boat, having registered operating growth of 136% and 109% respectively. Their valuations have captured this growth nicely, with a 22% rise each during the last financial year.

Other sectors have witnessed their valuations declining despite some strong financial results during the year. The valuation of the real-estate sector has come down heavily (97%) despite a massive 7,155% jump in operating profit growth over the year. Pharmaceutical companies also reported a robust 120% growth in operating profits during the year, yet their valuations have not supported the growth, falling by 7% during the year. The oil & gas sector's valuation too has not moved along with its growth. The sector grew 60% in terms of operating profit in the last financial year, while valuations declined 6%.




6 years ago

It is a good informative article..But again it only tells half the story..It doesnot reflect the implications for the investor i.e what should an investor do when he reads about valuations prepared for various sectors?

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