RIS­ING STOCK

Business Today - - FROM THE EDITOR -

Stock mar­kets re­flect ex­pec­ta­tions of the fu­ture. And in the past one year, the stock mar­kets have sig­nalled that they have high hopes for the near- and medium-term fu­ture. De­spite dis­rup­tive re­forms like de­mon­eti­sa­tion and GST – or per­haps be­cause of them – the mar­kets have been ris­ing re­lent­lessly. In the past one year, the Sen­sex has gone up by 7,536 points, or a gain of 28.9 per cent, while the Nifty has gone up by 28.8 per cent, zoom­ing from 8,033 to 10,348.

The BT 500 is­sue ranks com­pa­nies by their av­er­age mar­ket cap­i­tal­i­sa­tion be­tween Oc­to­ber 1, 2016 and Septem­ber 30, 2017. (We also look sep­a­rately at rev­enues, prof­its, debt and other fi­nan­cial pa­ram­e­ters.) In the pe­riod un­der con­sid­er­a­tion, the mar­ket cap­i­tal­i­sa­tion of the BT 500 com­pa­nies has gone up by

20.8 per cent. The next 500 com­pa­nies – that is num­bers 501 to

1,000 have seen an even higher rise, with their ag­gre­gate mar­ket cap­i­tal­i­sa­tion ris­ing by 26.9 per cent. Al­most 30 per cent of the most val­ued top 500 stocks traded at their all-time high price in the month of Oc­to­ber and Novem­ber (till date), when the Sen­sex moved from over 31,000 points to above 33,000 points.

This has hap­pened de­spite the fact that cor­po­rate earn­ings have been gen­er­ally slug­gish. To­tal in­come of the BT 500 group rose by an anaemic 6.1 per cent, though net prof­its growth was con­sid­er­ably bet­ter at 17.8 per cent. This was prob­a­bly be­cause of bet­ter cost con­trols. Mean­while, while fresh in­vest­ments and fresh bor­row­ings have been slow, the cash and bank bal­ance of BT 500 com­pa­nies (ex­clud­ing BFSI) have de­clined sig­nif­i­cantly by 20.4 per cent in FY ’17, com­pared to just 4 per cent de­cline in FY ’16.

Why are the mar­kets so bullish? One rea­son is that most peo­ple feel the govern­ment is de­ter­mined to clean up the sys­tem. The ef­forts to re­solve the NPA prob­lem through the In­sol­vency and Bank­ruptcy Code is an enor­mous step for­ward. GST, de­spite the ini­tial hic­cups, is the big­gest tax re­form be­ing im­ple­mented in decades and once it set­tles down, the ben­e­fits will start ac­cru­ing.

There are a cou­ple of other rea­sons as well. Global mar­kets have been on a high, and the In­dian mar­ket is not delinked from the over­all sen­ti­ments. Two, there are few as­set classes now that look at­trac­tive vis-a-vis the stock mar­kets. Real es­tate is still down in the dumps in ma­jor cities, and gold prices seem to have lost some favour with in­vestors. A lot of re­tail money is now flow­ing into mu­tual funds as sys­tem­atic in­vest­ment plans, and that, in turn, is lead­ing to ad­di­tional in­vest­ment in eq­ui­ties.

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