Sensex Ends Over 480 Points Higher; Telecom And Realty Stocks Witness Buying

Indian share markets continued their momentum during closing hours and ended the day on a positive note. Gains were largely seen in the telecom sector and realty sector.

At the closing bell, the BSE Sensex stood higher by 482 points (up 1.3%) and the NSE Nifty closed higher by 134 points (up 1.2%). The BSE Mid Cap index closed up by 0.6%, while the BSE Small Cap index ended the day up by around 1.1%.

Asian stock markets finished on a positive note as of the most recent closing prices. The Hang Seng stood up by 1.5% and the Nikkei was trading up by 1.8%.

European markets were trading on a mixed note. The FTSE 100 was down by 0.3%. The DAX was trading flat, while the CAC 40 was up by 0.2%.

The rupee was trading at 69.52 to US$ at the time of writing.

Speaking of Indian share markets in general, how do things look on the valuations front?

The Sensex price to earnings ratio has moved over the last five years. It has mostly been in a rising trend, except some intermittent declines.

But the Sensex tells a very a selective, skewed story of just the 30 largest companies.

So, it would be worth seeing the valuation trend of a much broader index.

Ankit Shah just did that and picked the NSE 500 for his latest study.

What he found was the NSE 500 index was trading cheap before the BJP came to power at the Centre in 2014. Since then, the price to earnings ratio of the index has been trending higher, like the Sensex.

It is interesting to note that the NSE 500 index has almost doubled between February 2014 and now. The price to earnings multiple of the index has gone up almost 70% during the same period, as can be seen from the chart below.

Market Valuations - 2014 to 2019

What does all of this mean?

Here's what Ankit wrote about it in today's edition of The 5 Minute WrapUp...

  • What this means is that the gains have mostly come from valuation multiple expansion and only about 30% from earnings growth.

    While the NSE 500 P/E ratio is down 12% from its August 2018 high of 34.5, it's still quite on the higher side. 

    As such, I believe the key to the next bull run would be a good growth in earnings of listed Indian companies.
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