Sensex, Nifty headed higher – Thursday closing report

As long as the Nifty holds above today’s low, we may see it rising further


We had mentioned on Wednesday that the NSE's CNX Nifty has to stay above 7,700 for the upmove to continue.  On Thursday the benchmark traded above this level for the entire trading session. Over the past four days, S&P BSE Sensex and Nifty have gained 774 points and 223 points, respectively. The market remains shut on Friday on account of Independence Day. After hitting the day’s low in the morning, the indices immediately surged and made a gradual move upward. The positive closing of the US indices on Wednesday added to the optimism on the bourses. Weaker-than-expected US retail sales data reinforced the view that the Federal Reserve won't rush to raise rates.

Sensex opened at 25,948 and hit a low of 25,945 after which it rose 100 points and moved sideways. In the last hour of the session it hit a high at 26,135. Nifty opened at 7,756 and moved from the level of  7,739 to the level of 7,797. Sensex closed at 26,103 (up 184 points or 0.71%) while the Nifty closed 7,792 (up 52 points or0.67%).


The NSE recorded a volume of 90.30 crore shares. India VIX fell 3.94% to close at 13.2200.

Market today awaited data on inflation based on the wholesale price index (WPI) for July 2014. The annual rate of inflation based on monthly WPI eased to 5.19% for July 2014, from 5.43% for June 2014. Meanwhile, the government revised upwards WPI inflation for May 2014 to 6.18% from 6.01% reported earlier.

The Indian government has reportedly sent the bill to liberalise the insurance sector to a parliament committee today after opposition parties opposed the legislation in the upper house, where it has a majority.

JSW Steel (8.65%) was the top gainer in the ‘A’ group on the BSE. It was in the news for the conclusion of the deal between Italian steelmaker Lucchini and the company.


However, it has said that it was yet to finalise any deal.

Bhushan Steel (4.97%) was the top loser in the ‘A’ group on the BSE. It has posted weak June 2014 quarter results, a net loss of Rs141.63 crore for the quarter June 2014, as compared to a net profit of Rs76.26 crore for the quarter ended June 2013. However, the sales for the relevant period increased from Rs2,490.86 crore to Rs2,801.68 crore.

HDFC (1.44%) was among the top two losers in the Sensex 30 stock. It hit its 52-week high today at Rs1,149.90 on the BSE.

US indices closed in the green on Wednesday. Sales at US retailers were unchanged in July, the weakest result in six months, as sales fell at auto dealers, but rose at gas stations and food and beverage stores, according to government data released on Wednesday.


Separately, business inventories rose in June by more than expected.

Asian indices showed a mixed performance. Among the trading Asian indices, Nikkei 225 (0.66%) was the top gainer while Shanghai Composite (0.74%) was the top loser.

European indices were trading higher. US Futures too were marginally in the green.

GDP in Germany, the currency block's largest economy, fell 0.2% from the first quarter, when it rose a revised 0.7%, the Federal Statistics Office in Wiesbaden said today. French GDP stagnated in the three months through June, the national statistics office Insee said today in a statement.


July inflation down to a 5-month low at 5.19%

WPI inflation in vegetables declined 1.27%, however, potato prices shot up 46.41% and fruits 31.71% during July


Inflation dipped to a five month low of 5.19% in July mainly due to decline in the prices of some food articles, vegetables and protein-rich items. It was at 5.43% last month and 5.84% in July 2013.


Inflation in the overall food articles basket, which account for 14% of the total wholesale price index (WPI), stood at 8.43%. It was at 8.14% in June.


Inflation in vegetables declined 1.27%, and for onion it was (-)8.13% on an annual basis in July, as per the WPI data released on Thursday.


However, potato prices shot up 46.41% and fruits 31.71% during the month. Rate of price rise in milk was at 10.46%.


Inflation in the egg, meat and fish category stood at 2.71% in July as against 10.27% in the previous month.


While the rate of price rise in pulses was 3.31%, it was at 4.46% for cereals. In rice it was 6.85% and wheat 1.02% in July.


Inflation in the manufactured products was at 3.67%, and non-food articles, which include fibre, oil seeds and minerals, at 3.32%.


Inflation in the fuel and power category, meanwhile, was down at 7.40% from the previous month.


The WPI inflation data was revised upwards for May to 6.18%, from 6.01% as per provisional estimates.


The Reserve Bank of India (RBI) in its monetary policy review last week had cautioned that continued uncertainty over monsoon could stoke food inflation, but expressed the hope that government policies will improve supplies in the coming months. Retail inflation data for July, released earlier this week, showed a marginal inch up to 7.96%.


Market rally is backed by strong June quarter results

Quarterly results declared by 682 companies on Moneylife’s list have been very encouraging


Indian stock markets have been rallying sharply since March this year. While a large part of the rally was seen as a euphoric market reaction to the new government at the Centre, it appears that the fundamentals have played a strong role too in keeping the kept market sentiments buoyant. Out of Moneylife’s sample of 1,294 companies, as many as 682 companies have declared their June quarter results. The aggregate sales of the 682 companies were 12% higher for the quarter ended June 2014 than the sales for the June 2013 quarter. The aggregate operating profit has grown by 14% year-on-year (y-o-y), while net profit has grown by as much as 24%. Over the one-year period ended 9 August 2014, the aggregate market-cap of the 682 companies has grown by 43%.


Therefore, along with the increase in earnings, the valuations of the companies have increased significantly over this period.


In terms of profitability, profit margins too, have increased. The net profit margin (aggregate net profit/aggregate sales) of Moneylife’s sample increased to 10.2% in the June 2014 quarter from 9.2% in the same quarter a year ago. Operating profit margin (OPM) increased marginally to 17.86% from 17.64% over the same period. As many as 356 companies reported an increase in OPM, while 341 companies reported a higher NPM.


Coincidentally, the number of companies that reported a net profit in the June quarter is the same in both the years. As many as 574 companies or 84% of the sample, reported a net profit. The number of companies that reported an increase in operating profit increased to 630 from 617 a year ago. As many as 393 companies reported an increase in operating profit growth and 362 companies reported an increase in net profit growth.


As many as 39 companies which reported a net loss in the June 2013 quarter have reported a profit in the latest quarter.


In terms of valuation, as calculated by market-cap to operating profit (latest quarter annualised), as many as 558 companies or 82% of the sample are quoting a higher MC/OP compared to a year ago. Taking an aggregate, the MC/OP for the 682 companies was 10.8 as on 9 August 2014, 26.21% higher, compared to an MC/OP of 8.6 as on 8 August 2013. Investors would be hoping that the trends in profitability will continue.


Another valuation measure considered by Moneylife is market-cap to sales. Nearly 92% of the sample or 630 companies are quoting a higher MC/sales compared to a year ago.


Taking an aggregate of the 682 companies, the MC/sales was 1.9 as on 9 August 2014 compared to 1.5 on 8 August 2013. The price-to-earnings (PE) of the sample has increased to 19 from 16.4 over the same period. In short, the market is expecting the excellent performance to continue which is why we are witnessing expansion in valuation.


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