Sensex Opens In Green; Kotak Mahindra Bank Rallies

Asian shares are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.3% while the Hang Seng down 0.8%. The Shanghai Composite is trading down by 0.4%. Overnight US stocks closed slightly higher after comments from a Trump administration official on trade with China and the Mexican economy minister on the renegotiation of the North American Free Trade Agreement provided cause for optimism.

Back home, India share markets opened the day on a positive note. The BSE Sensex is trading up by 93 points while the NSE Nifty is trading up by 17 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.1% & 0.2% respectively.

The Market cap to GDP ratio for Indian companies too 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.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India's GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued-Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

Sectoral indices have opened the day on a mixed note with automobile stocks and capital goods stocks witnessing maximum buying interest. While information technology stocks and metal stocks have opened the day in the red. The rupee is trading at 66.78 to the US$.

Tata Motors share price surged 2.7% in the opening trade after it reported a massive 86 per cent jump in its domestic sales at 53,511 units in April led by continued strong sales performance of its Commercial and Passenger Vehicles business in the domestic market.

Kotak Mahindra Bank share price rallied over 3% on the reports of Kotak Mahindra Bank & Axis bank merger. Meanwhile, Kotak Mahindra Bank has reported Q4 results in line with estimates. The major private lender has reported a rise of 27% in consolidated net profit to Rs 17.9 billion for the quarter ended 31 March 2018 following a marginal rise in the provisioning as the asset quality improved in the reporting period.

In the news from the engineering space. In its biggest divestment so far, engineering conglomerate Larsen & Toubro (L&T) said it will sell its electrical and automation business (E&A) to France-headquartered Schneider Electric for a cash consideration of Rs 140 billion.

Reportedly, the divestment plan, which was first discussed in the summer of 2015, took three years to mature.

The deal is important because it signals L&T's exit from manufacturing in the real sense. Although it will continue with manufacturing in power equipment as well as industrial products and machinery, that will primarily be on the project business side with associated fabrication.

There have been many divestments in the past, the biggest being the company's exit from cement 15 years ago.

Schneider Electric will partner investment company Temasek for the deal, which took merchant bankers to several cities within India and overseas.

The divestment of this business is part of L&T's larger plan to streamline its operations by divesting from non-core assets. The contribution from the E&A division to L&T's total revenue has declined over the years as the proportion of other segments such as infrastructure and engineering, procurement, and construction grew.

In addition, the E&A industry, which requires constant technological advancements, also grew competitive.

For the financial year 2016-17, the E&A business reported net revenue of Rs 50.4 billion.

The divestment of E&A business is in line with L&T's stated intent of unlocking value within the existing business portfolio to streamline and allocate capital and management focus for creating long-term value for its stakeholders.

Further, this deal will strengthen Schneider Electric's India business, making it the third largest country in terms of revenues of €1.6 billion (Rs 128 billion), on a par with France, the reports noted.

L&T share price has opened the day up by 0.7%.

Moving on to the news from automobiles sector. As per an article in a leading financial daily, Mahindra and Mahindra (M&M) has signed a share subscription agreement to acquire up to 10% stake in Canadian IT firm Resson Aerospace Corp.

M&M said the cost of acquisition is up to Canadian dollar 6.63 million (equivalent to approximately Rs 345 million) is to be paid in cash.

Reportedly, the company signed a share subscription agreement for subscribing up to 8,00,402 Class C preferred shares of Resson Aerospace Corporation, Canada, which would result in the company holding up to 10% of the share capital of Resson on a fully diluted basis.

Resson is focussed on providing technology solutions for agriculture. It has developed a system which captures and interprets images to give farmers information about the state of their fields and crops.

Further, it operates primarily in Canada and the US. Resson had a turnover of Canadian dollar 1.43 million in 2017.

M&M said the Resson stake would help support its businesses by developing technology solutions for the firm's farm division.

M&M share price opened the day up by 0.5%.