Graphic: Mint
Graphic: Mint

BSE market cap at record high, but risks remain

At 12.15pm, market cap of BSE-listed companies stood at 15,657,000 crore as the benchmark Sensex Index traded at a fresh record high today

Mumbai: Market valuation of all listed firms on BSE hit a lifetime high of 156.60 trillion on Monday, following strong gains in the benchmark Sensex, and closed at 156.55 trillion at the end of the day’s trade.

The previous peak in market cap was 156.56 trillion on 23 January. Total market capitalization of all listed firms on BSE rose 3.17% from the beginning of this year. In dollar terms, however, the market cap fell 5.6% to $2.24 trillion from the beginning of the year, Bloomberg data showed.

Supported by strong global cues, Indian benchmark indices were at a record closing high, with the Nifty breaching the 11,500-mark for the first time ever. The 50-share Nifty ended at 11,551.75, up 0.71%, while the Sensex rose 0.87% to 38,278.75 points.

Most Asian share markets crept cautiously higher as investors awaited developments on the proposed Sino-US trade talks and the Chinese yuan rallying from alarming lows. MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.6%. Hong Kong’s Hang Seng index added 0.9%.

Moves were modest elsewhere, with Shanghai blue chips barely changing and Japan’s Nikkei ending 0.3% lower in thin trade. Investors were also encouraged by news that China and the US will hold low-level trade talks this month, offering hope they might resolve the escalating tariff war. Reports suggested talks in Washington will take place on 21-22 August, just before the US tariffs on $16 billion of Chinese goods take effect.

Deepak Jasani, head of retail research at HDFC Securities Ltd, said the markets were buoyant because the earnings season was better-than-expected, while the concerns over the crisis surrounding Turkey’s economy and of a looming trade war have had limited impact on India.

“This has also meant that FIIs who are already invested in India have not taken a very negative view on India and exited in a big way. This also reflects their view on India’s relative attractiveness over a few quarters. This is despite the weakness in the Indian rupee which has eroded the returns for FIIs in dollar terms."

The improvement in earnings growth also supported the rally. A Mint analysis of 1,462 listed companies showed that aggregate net profit, after adjusting for one-time gains and losses, rose 22.24% in the first three months of 2018-19. According to data provider Capitaline, the corresponding figure for the same set of companies was 14.84% in the March quarter, and a meagre 0.01% in the April-June 2017 period.

Though India is the best performing markets among Asian peers, risks abound with a depreciating rupee and higher crude prices expected to eat into the country’s fiscal buffers, while valuations of Indian shares are rich.

According to Morgan Stanley, relative valuations are nudging higher to make the market less attractive, especially if the pace of the recent outperformance persists. “India has been remarkably resilient (low beta) in the recent emerging markets turmoil driven by macro stability, low policy uncertainty, improving growth and domestic flows," Ridham Desai and Sheela Rathi, equity strategists, Morgan Stanley said in a report on 20 August.

“India’s growth is likely accelerating relative to emerging markets. Our work shows that corporate confidence is at a multi-year high and profits are likely to mean revert from below trend. Indeed, India’s corporate profit share in GDP is at close to all-time lows which means the upcycle could be quite significant--a contrast to most other parts of the world," the report added.

Reuters contributed to the story.

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