Asian stocks are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 1.28% while the Hang Seng is down 0.10%. The Shanghai Composite is trading down by 0.96%. US stocks rose on Wednesday, capping off a strong start to 2018. The Dow Jones industrial average and S&P 500 notched their best monthly performances since March 2016.
Back home, India share markets opened the day on a firm note as market participants await Union Budget 2018, to be presented by Finance Minister Arun Jaitley today. The BSE Sensex is trading higher by 136 points while the NSE Niftyis trading higher by 46 points. The BSE Mid Cap index and BSE Small Cap index opened the day down by 0.1% & 0.4% respectively.
All sectoral indices have opened the day in green with consumer durables stocks and capital goods stocks witnessing maximum buying interest. The rupee is trading at 63.69 to the US$.
With Indian Indices trading at all-time high levels, the question many have in mind is if the Indian stock market is overvalued. To gauge this, we generally refer to PE or price to earnings ratio. If we go by this ratio, the Indian market is clearly in overvaluation territory. The Sensex is trading at a PE of around 26 times.
However, there is still another ratio, which is frequently used to evaluate the valuations. The market capitalization to GDP ratio. It is one of Buffett's favorite indicators of broader market value. The market cap of all the listed companies in the country divided by the gross domestic product (GDP) of the country gives us this ratio.
The idea behind this ratio is simple. Stock prices are derived from expected earnings for corporates and GDP represents revenue of the country. This gives investors an estimate of whether the two are moving in tandem. A ratio above 100% shows overvaluation and one below 50% shows that the market may be undervalued. So what does the ratio presently indicates about Indian stock markets?
The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued
As can be seen from the chart above, the Market cap to GDP ratio for Indian companies is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it's relatively high.
In all, 2018 will be critical for Indian companies to justify their valuations with earnings growth. Investors must remain cognizant about valuations and ensure they take some profits off the table whenever the opportunity is ripe for the picking.
Engineering stocks have opened the day on a mixed note with Kalpataru Power and Larsen & Tourbo being the most active stocks in this space. L&T share price surged 3.2% in the opening trade after it reported a 53% rise in the quarter ended December 2017, beating analysts' expectations. The growth came mainly on the back of new orders, mainly in the infrastructure and hydrocarbon segments.
Net profit during the quarter rose to Rs 14.9 billion from Rs 9.7 billion a year earlier. Further, revenue from operations increased by 9.4% to Rs 287.5 billion, with international revenue constituting 35% of the total.
The group received new orders worth Rs 481.3 billion in the quarter, an increase of 38% from last year, while the group's order book stood at Rs 2.71 trillion.
Notably, in November 2017, the company had received a massive order for Hyderabad Metro rail. The first phase of Hyderabad Metro Rail project was inaugurated on 28 November by Prime Minister Narendra Modi. The project cost at the time of signing of concessionaire agreement in 2010 was Rs 141.3 billion.
Meanwhile, the company crossed the Rs 2 trillion market capitalisation. The stock had touched a high of Rs 1,430.6 a share last week.
Moving on to the news from banking sector. ICICI Bank share price opened on a negative note after it reported a 32% drop in its profits for the third quarter ended 31 December 2017 to Rs 16.5 billion.
Net interest income for the quarter rose 6% while non-interest income was down 20%. Profits in the first two quarters of the fiscal were slightly above the Rs 20-billion mark.
On consolidated basis, taking into account the performance of its subsidiaries, profit for the quarter was at Rs 18.9 billion, compared to Rs 26.1 billion in the corresponding quarter of the previous year.
Further, additions to the gross non-performing assets were at Rs 43.8 billion during the quarter, substantially lower than the Rs 70.4 billion added in the same quarter of the previous fiscal.
Gross NPAs for the bank were at Rs 460.4 billion at the end of December 2017 and were at 7.8% of loans. Provisions declined sequentially to Rs 35.7 billion, from Rs 45 billion in the previous quarter. Provision coverage increased to nearly 61%.
Meanwhile, domestic loan growth for the bank picked up speed during the quarter, growing at 16% year-on-year, propelled by retail loans which grew faster at 22% y-o-y.
The banking system as a whole is seeing credit growth at around 11% y-o-y currently. Retail loans are predominantly housing loans, vehicle loans, personal loans, credit card, rural and other loans. Retail loans account for 54% of the loan portfolio of the bank.
The bank's net interest margin for the quarter was at 3.14%, down about 13 basis points compared to its margins in the first two quarters of the year.
Comments
Log in or sign up to join the conversation.