Sensex Ends Near Record High; Realty Stocks Bleed

Thu, 18 Jan Closing | Monish Vora, TM Team

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After opening the day on a strong note, share markets in India witnessed volatility during the last hour of trading session. However, they managed to end the day on a positive note. Losses were seen across most sectors with stocks in the telecom sector and stocks in the realty sector leading the losses. Banking stocks, on the other hand, traded in the green.

At the closing bell, the BSE Sensex stood higher by 178 points (up 0.5%) and the NSE Nifty closed up by 28 points (up 0.3%). Most of the selling pressure was seen for the BSE Mid Cap index, which ended the day down 1.7%, and the BSE Small Cap index which ended down by 2%.

Asian stock markets finished on a mixed note. As of the most recent closing prices, the Hang Seng was up by 0.43% and the Shanghai Composite was up by 0.91%. The Nikkei 225 was down by 0.44%. European markets were also trading mixed. The FTSE was down by 0.38%. The DAX stood up by 0.42%, while the CAC 40 was up by 0.17%.

The rupee was trading at Rs 63.83 against the US$ in the afternoon session.

In the news from the pharmaceuticals space, Suven Life Sciences has secured one product patent from China and one product patent from Sri Lanka corresponding to the New Chemical Entities (NCEs). The two patents are valid through 2033 and 2032 respectively.

The granted claims of the patents include the class of selective 5-HT4 and H3 compounds respectively.

These compounds are being developed as therapeutic agents for major depressive disorders and neurodegenerative disorders like Alzheimer's disease, Attention deficient hyperactivity disorder (ADHD), Huntington's disease, Narcolepsy, Parkinson and Schizophrenia respectively.

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One must note that the innovators in the pharmaceutical industry rely heavily on patents. They make heavy use of patents whenever they create a new drug. The patent allows them to recoup the high capital expenditure that goes into the research and development (R&D) of new drugs. Also, companies that have a patent on a particular product are immune from competition for the duration of the patent.

Speaking of pharma companies, the BSE healthcare index was the worst performing sector in 2017. In fact, the sector has underperformed over the past three years.

While 2018 earnings of pharma companies are expected to be better considering the low earnings base in 2017, certain challenges still remain.

The valuations of the top five companies by market capitalization on BSE healthcare remain high. Average Price to Earnings Ratio of the top five companies stands at 36. Considering the headwinds these companies are facing, it certainly seems rich.

Valuations of Top Pharma Companies Still High

An improved earnings performance in 2017 will certainly get these valuations to reasonable levels, provided the share price remains the same. But, the headwinds for the sector still exists.

2018 looks likely to be another challenging year for the sector. The uncertainties make it important to be stock specific in the sector.

As of today, three stocks in the pharma sector are currently buy worthy according to The India Letter (subscription required). These are the pharma stocks we believe will outlast the others in the long run.

Moving on to the news from commodities space. India's gold imports rose 53% to 846 tonnes in the 2017 fiscal. This came mainly on the back of strong domestic demand and lower global prices.

Reportedly, India is world's second largest gold consumer and had imported 550 tonnes of the metal in 2016.

In December 2017 alone, gold imports rose to 70 tonnes from 49 tonnes in the year-ago period.

Further, global prices of gold remained lower between US$1,200 per ounce and US$1,300 per ounce. Currently, they are ruling higher at above Rs 1,330 per ounce level.

To keep a tab on the movements in gold and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency, and commodity markets.

And here's a note from Profit Hunter:

The Indian indices witnessed some selling pressure in the post-lunch session after a strong play in the first half.

ICICI Bank opened gap up and rallied 3% to make a high of 353, but slipped a bit lower towards the end of the session to less than a percent.

The last time we reviewed the stock, it was trading in a rising channel. It had bounced up from the channel's support line and then rose nearly 16% to find its resistance from the channel's upper line. Later it slipped from there to 17%. The stock is still trading in the same rising channel.

It is now trading at the channel's resistance line placed at 350. This level also coincides with the life-high it made in January 2015, the point from where the stock started its bear market to erode half of its price. The life-time highs usually acts as a strong resistance.

So will the stock repeat the history and start a new bear market from here or will it break the 350 resistance level to continue its momentum? It will be quite exciting to watch. Stay tuned...

ICICI Bank at an Important Resistance Level

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