After opening the day on a positive note, share markets in India continued to trade higher following the rollout of Goods and Services Tax, the country’s landmark tax reform. All sectoral indices are trading in green, with stocks in the FMCG sector & metal sector leading the gains.
The BSE Sensex is trading higher by 302 points (up 0.1%) while the NSE Nifty is trading higher by 89 points (up 0.2%). The BSE Mid Cap index is trading up by 0.9% and BSE Small Cap index is trading up by 1%. Gold prices, per 10 grams, are trading at Rs 28,363 levels. Silver price, per kilogram, is trading at Rs 38,329 levels. Crude oil is trading at Rs 3,006 per barrel. The rupee is trading at 64.74 to the US$.
The markets are touching record highs every day. It makes sense to sit back and evaluate if the fundamentals are in place for such heady growth. When one looks at corporate earnings over the past 5 years, it paints a different picture.
Earnings Yet to Catch Up with Valuations
While valuation has reached dizzy heights, earnings are yet to catch up. Investors are hoping that earnings will eventually catch up with valuations. Even the slowdown on the economy due to the notebandi impact has been ignored.
With money from retail investors coming into the market at a steady pace, the general assumption amongst investors is that growth will eventually come and justify the premium valuations they’ve given to the markets. Perhaps investors are getting ahead of themselves.
Automobile stocks are trading in green with Escorts and Ashok Leyland leading the gains. Ashok Leyland share price rallied as much as 5.5% today after the auto major registered sales growth of 11% on a year-on-year (YoY) basis to 12,330 units for the month of June 2017.
It had suffered a decline of 8% in total sales during May 2017 on the back of the downslide in medium and heavy commercial vehicles.
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