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Sensex Trades In Red; Pharma & Auto Stocks Decline

Indian share markets turned lower after rising in the morning hours. PSU stocks and automobile stocks are witnessing majority of the selling activity. Meanwhile, software stocks are trading in green.

The BSE Sensex is trading lower by 78 points and the NSE Nifty is trading down by 28 points. Meanwhile, the BSE Mid Cap index is trading down by 0.8% & the BSE Small Cap index is down by 1%. The rupee is trading at 63.92 to the US$.

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.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

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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.

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.

In news from automobile sector, as per an article in The Livemint, Mahindra & Mahindra (M&M) on Friday said it will invest up to Rs 1.76 billion in car and bicycle rental firm Zoomcar India or Zoomcar Inc., its US incorporated holding parent company.

Mahindra said the company has been keen to invest in the shared mobility space as part of its strategy to participate in sustainable mobility solutions.

In November last year, Mahindra and Zoomcar announced a partnership to introduce electric vehicles in the shared mobility space.

Zoomcar recently launched Mahindra e20Plus electric vehicles (EV) across Mysore, Bengaluru and Hyderabad. Going forward, it expects to add over 500 Mahindra EVs across more than 20 cities pan-India, in the first half of 2018.

Zoom Car India operates a fleet of over 2,500 vehicles in 27 cities across India. For the fiscal year 2017 it had recorded a revenue of Rs 1.21 billion.

In another development, Mahindra & Mahindra's (M&M) Pininfarina will be developing two cars for Vietnamese carmaker VinFast. Vietnamese carmaker VinFast Trading and Production Company has finalized a contract with leading car designer Pininfarina for the development of two cars, an SUV and a sedan.

M&M share price was trading down by 0.7% at the time of writing.

Moving on to news from software sector. Infosys share price was trading up by 0.7% in the noon session after UCAS, the admissions service for UK higher education, extended its existing partnership with Infosys to support its business strategy up to 2021.

As part of the renewed engagement, Infosys will provide a wide range of digital services that will enable UCAS to continue to develop technology capabilities that connect learners to multiple destinations, such as universities, awarding bodies, schools and other organisations, using a dynamic digital suite of systems that responds to a rapidly changing higher education sector in the UK.

Infosys will now concentrate on helping UCAS achieve its ambitious targets on lowering costs, optimising and enhancing services for students, delivering more robust security, and providing business-as-usual (BAU) services between legacy and new digital systems.

In news from the economy, extending the growth trend for third straight month, India's merchandise exports grew by 9.07% to US$24383.97 million in January 2018, on account of healthy growth in shipments of chemicals, engineering goods and petroleum products.

The country's exports have been on a positive trajectory since August 2016 to January 2018 with a dip of 1.1% in the month of October 2017.

However, the overall trade deficit widened to US$16298.47 million during the month under review as against US$9904.82 million in January 2017, the highest in more than three years. The trade deficit during April- January 2017-18 was US$131155.52 million as against US$88337.00 million in the same period last year.

Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. ...