Why is the Indian stock market up so much?

Hello everyone, I'm Hairong-kun.

Yesterday evening, there was a technical glitch on the New York Stock Exchange, and Berkshire plummeted 99.97% in a single day. A friend joked: Berkshire received an inquiry letter from the China Securities Regulatory Commission, and it will be ST Berkshire.

After the market, the New York Stock Exchange announced that all transactions generated during the technical failure were voided.

During the day today, the Indian stock market fell 5%, and then rushed to the hot search. In a country where trains are full of tickets, the stock market has risen from 25,638 points in March 2020 to 76,604 points in May 2024.

First of all, to explain the main reason for today's decline, Modi advocates reform and advocates infrastructure construction, but his votes today are lower than market expectations, and foreign investors see this situation and quickly sell stocks.

I'm curious, why has the Indian stock market risen so much over the years?

When we talk about India, we are talking mainly about the Bombay 30 Index, which is issued by the Bombay Stock Exchange and selects the 30 largest stocks in the Indian stock market. As of January 2024, the Sensex 30 has a market capitalization of $1.5 trillion, accounting for about 34% of the overall market capitalization ($4.3 trillion).

Let's talk about a few intuitive impressions first, there are really a lot of good companies that make money in India 30.

India Tobacco, in the past 20 years, revenue has increased 19 times, net profit margin is 14%, ROE is 25%

National Grid of India: Net profit margin of 48.61%, since 2007, National Grid of India's profit has increased by 1317%.

National Power of India: Monopoly position, thermal power, coal, gas business 99%, ROE about 12%.

Bank stocks: There are 9 financial stocks in the index, accounting for 32.5%, the overall banking net interest margin is above 3% (the domestic net interest margin is now 1.5%), the ROE center is about 18%, and there are some similar to the domestic banking industry before 2007. The valuation of bank stocks in the market is also relatively high, about 2PB to 3PB, and now the valuation of domestic banks is about 0.5 times PB.

IT Outsourcing Industry: Tata Consultancy, India's largest IT company, with 45% revenue from the US and profitability ROE of 30%,

Overall, from 2005 to 2023, Sensex 30 has risen by 662%, of which EPS has risen by 469% and P/E has increased by 34%.

The India 30 Index is so bullish, a very important reason, the listing time is very early, the Indian Tobacco Corporation was listed in 1987, the State Grid was listed in 2007, the State Power of India was listed in 2004, and Tata Consulting was listed in 2004.

After 2014, Modi has made great efforts to reform (GST tax reform, labor law reform, infrastructure construction, land acquisition law reform, etc.), driven by both performance and valuation, and the P/E valuation has risen from 17x to 23x.

On the other hand, after the IPO of PetroChina in 2007, the valuation on the first day of listing was 60 times PE, and then through 10 years of digestion valuation, ICBC was listed in 2006, and the growth stayed in the primary market, and the valuation on the first day of IPO was 3 times PB, and then it took 14 years to change the valuation to 0.55 times PB. China Mobile's high-growth stage will be retained in Hong Kong stocks, and Tencent's high-growth stage will be retained in Hong Kong stocks.

Why can't A-shares, the core still needs a group of companies with growth and reasonable valuations to drive the index up.

After the new village chief took office, there was no way to solve the growth problem, which is a historical situation, and it is impossible to get a high-growth company in the short term. He chose to drive growth by buying back & increasing dividends and reducing the share capital, which is also considered a method.

It is worth noting that the valuation of the Indian index is very high, now it is 21 times PE P/E, 4.09 times PB P/B, A-share CSI 300 is valued at 12 times PE, 1.25 times PB, and Hong Kong stocks are even lower.

Let's talk about the rest:

1. He said, "The purchase price announced by Guangzhou is the cost price, and the current selling price of our project is lower than the cost price, so it would be best if it could be sold to Guangzhou at the cost price."

2. Fast fashion company Shein is preparing to go public in London, with an IPO valuation of £50 billion, and Shein's net profit in 2023 is $2.2 billion, far exceeding the $700 million in 2022 and $1.1 billion in 2021.

Like Temu, Shein uses a very low-cost domestic supply chain and then competes with e-commerce in Europe, America and Southeast Asia. The valuation of shein in the London market is not low, 50 billion pounds corresponds to 64 billion US dollars, and shein will make a profit of 2.2 billion US dollars in 2023, corresponding to 30 times PE. Logically, if SHEIN can make a profit, so can TEMU.

3. International crude oil has fallen 8% in the last four days, and OPEC, led by Saudi Arabia and Russia, said it would gradually cancel its planned production cuts of 2.2 million barrels per day starting in October. Supply in the market is expected to increase by more than 500,000 barrels per day by December and by 1.8 million barrels per day by June 2025. CNOOC, PetroChina are all small falls, the market is not serious.

Or OPEC cattle, just have a casual meeting, and lie down together to make money on oil. When will the PV industry be?

4. Pharmaceutical stocks rose, GenScript rose 10.57%, Gloria rose 2.82%, and WuXi Biologics rose 4%, the main reason is very tragic, that is, some of the funds that do "cigarette butt stocks" are interested in GenScript. If you want to make a big market, you still need the support of the policies of the Medical Insurance Bureau and real money.

5. Foreign capital inflowed 3.378 billion today, buying BYD 370 million, CATL 320 million, and Kweichow Moutai 170 million. Ningde is a foreign capital and the national team to go long together, Kweichow Moutai is not expensive according to the logic of luxury, and the valuations of LV and Ferrari are above 50 times PE.

Today, the trading volume of the two cities was 749 billion, continuing to shrink, with 2,076 companies rising and 3,128 companies falling, with a median decline of 0.59%.

Micro-cap stocks fell 2.89%, and funds continued to sell micro-cap stocks, making investments and not going against the trend of policies.

Yangtze River Power and China Nuclear Power continued to reach new highs, and Tencent rose 0.64%, and part of the funds still bought high dividends. Southbound funds continue to buy China Mobile and Tencent, and after power stocks have risen more, these two are cost-effective again.

The real estate industry pulled a wave in the afternoon, consumption followed by a wave, the sales data in May was average, and the market was expecting more policies.

The trading volume is still low, and the national team still needs to work hard.

--Written on June 4, 2024