Higher valuations of scrips taking toll on markets

A man walks past the Bombay Stock Exchange (BSE) building in Mumbai, India October 4, 2018. REUTERS/Francis Mascarenhas

The skyrocketing valuations in the Indian markets seem to be taking a toll on the shares of various companies as the BSE Sensex shed close to 1,600 points in the past five trading sessions.

The 30-share BSE Sensex witnessed bearish phase this week which started with an escalation of trade war between the US and China, triggering a massive sell-off in the Indian markets -- that wiped off all its gains since the beginning of March 2019.

"The results of many companies have not been that great this earnings season. So, we are seeing a correction in the valuations," Rahul Shah, Vice President, Equity, Motilal Oswal said.

Even as the BSE Sensex ended the day on the positive note as State Bank of India announced reasonably decent quarterly numbers, markets still ended with a weekly loss of 1,596 points. During the day's trade, the markets witnessed a heavy degree of volatility. After opening flat in the morning, the markets fell as much as 124 points before recovering due to the SBI results. After an even more volatile last hour of trade, the BSE Sensex closed 96 points lower at 37,463.

The market breadth was also heavily negative with 1,274 declines, as against 1,212 advances. 

On the other hand, NSE Nifty, marred with similar volatility, closed 23 points lower at 11,278.9 points. 

The market capitalisation of all the companies listed on the exchange has shown a healthy compound annual growth rate (CAGR) of 16.6% since 2015-16. The total market capitalisation of all the companies listed on BSE stood at Rs 1,44,48,466 crore by December 2018, a growth of 52.5% compared to Rs 94.75 lakh crore as on March 2016, according to the data available with the Bombay Stock Exchange (BSE).

On the contrary, the earnings of all the listed Indian entities have declined by a compounded rate of 1.3% during the same period. The drop was triggered by the slower growth in the wake of demonetisation and banking crisis arising out of the increased bad loans. During three out of past four financial years, the overall corporate earnings have seen a year-on-year decline – 25.3% in FY18, 12.3% in FY16 and 0.2% in FY15, according to the data provided by Care Ratings.

Analysts are expecting markets to be volatile till election results, owing to the nervousness surrounding them.

The volatility in the markets is also reflected in the rupee value against the US dollar. Propelled by unabated foreign fund outflow in the week in excess of Rs 4,100 crore, the rupee slipped 83 paise against the greenback till Thursday. However, on Friday, the rupee witnessed 3 paise correction.

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