Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Sensex V/s Pharma V/s Software - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 16, 2004

    Sensex V/s Pharma V/s Software

    Looking at the behavior of the Indian stock markets in the last one month, one gets a feeling that it has again proved to be the proverbial conundrum, something extremely difficult to predict in the short term. Shrugging off the twin demons of inflation and rising interest rates, the BSE-Sensex has notched up an impressive 9% gains in a matter of a month. Still impressive was the performance of two of the most promising sectors in the Indian corporate space - pharma and software. While one would not want to hazard a guess on the position of the index in the medium to long term, one can predict with reasonable confidence that these two sectors are in for some good times ahead. Let us find out the reason behind this optimism.

    The strong performance of pharma index relative to the Sensex can be attributed to the strong growth prospects that pharma companies offer in times ahead. However, the main constituents of the pharma index like Ranbaxy, Cipla, Dr. Reddy's, Glaxo and Nicholas Piramal are all rising for different reasons. While the heavyweights, Ranbaxy and Dr Reddy's, are rising on account of investors' expectations of global opportunities that exist for Indian companies in the US and European markets, Glaxo and other MNC pharma companies have participated in the bull run on expectations of arising benefits of the new patent regime post-2005.

    In the analyst meet last week, Ranbaxy talked about its vision for the year 2007 of reaching US$ 2 bn in revenues. The path chosen for the same is pretty clear and the company might attain this ambition as it did with its previous target of US$ 1 bn in 2003. The management seemed quite confident of its products in the US generics market and said that it will continue to file 20-25 ANDA's (abbreviated new drug applications) every year going forward. This has given the markets some confidence about the success of Ranbaxy going forward. The effect of this confidence can be seen with Dr. Reddy's as well, which has also rallied considerably in the past month. While Dr. Reddy's has reported a streak dismal performance in the past few quarters, we believe that the worst might get over for the company after another quarter. The company, which has invested hugely in R&D activities, may launch certain non Para IV products in the US in the next few quarters. Most of the incremental R&D expenses that Dr. Reddy's have made in the past few quarters have gone into increased ANDA activities.

    Another drugs major, Cipla has run up more that 40% in the last two months on expectations of high growth prospects in the bulk drugs segment. Cipla has tied up with some US generic majors like Ivax, Watson and Parr for supply of bulk drugs for about 140 generics products of these companies. Apart from that, the company is focusing on new product launches in the domestic market. The company has grown faster than the overall domestic market growth in the first half of the current year.

    While stocks of Indian pharma companies are gaining ground on positive news from the exports front, MNC pharma companies have been gaining because of opportunity available to them post 2005 when process regime gives way to the patent regime. Companies such as Glaxo, Pfizer, Aventis and Novartis, which have strong pipeline of patented products, are likely to gain most from the new patent regime. However, the quantum of gains and the timing of the same will depend upon the affordability and acceptance of costly drugs by the Indian patients.

    With, very low penetration levels of medicines in the country and changing life style, we can be sure that in coming years the growth of the pharma sector may change its trajectory and go on a higher growth path. Apart from that, the cost competitiveness of the Indian producers can be a great advantage for them in the international market.

    Stocks from the other knowledge driven sector, software, have also rallied significantly in the last one month with the IT index churning out a return of 13% compared to 6% from the Sensex. The major players in the Indian software space - Infosys, Wipro, TCS and Satyam as well as niche player like Geometric Software, Hughes Software and i-flex have outperformed the market in the last month. And this seems a result of rising investors' optimism about increased outsourcing businesses to these companies.

    Even though global majors like Cisco and Intel have revised their second half guidance and have indicated cautious times ahead, investors continue to favour technology stocks in the Indian markets. Internationally, companies are accepting the global delivery models of the Indian software vendors and have shown increased eagerness to outsource their IT requirements to Indian companies. Thus, as outsourcing becomes mainstream and billing rates stabilise further, Indian software companies can look forward to improved times ahead.

    However, here we would like to caution investors from considering all companies in the IT sector 'insulated' from the turn of events outside their realm. We believe that going forward, demand for technology solution from global clients is likely to be concentrated among a few players. These could either be the large software and services vendors or small niche players. This is because the demand for technology is likely to be more guided by the 'Return on Investment' factor, i.e., how much of cost saving or return on investment can be obtained by clients from their IT spending.



    Equitymaster requests your view! Post a comment on "Sensex V/s Pharma V/s Software". Click here!


    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 (Close)