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Sensex Trades in Green; IT Stocks Top Losers
Mon, 26 Feb 01:30 pm

After opening the day in green share markets in India  have continued the momentum and are presently trading comfortably above the dotted line. Sectoral indices are trading on a mixed note, with stocks in the realty sector and stocks in the auto sector witnessing maximum buying interest. While stocks in the IT sector are leading the losses.

The BSE Sensex is trading up by 245 points (up 0.7%) and the NSE Nifty is trading up by 75 points (up 0.7%). Meanwhile, the BSE Mid Cap index is trading up by 0.8%, while the BSE Small Cap index is trading up by 0.9%. The rupee is trading at 64.68 to the US$.

In news from stocks in the pharma sector. Sun Pharma share price is among the top losers on the bourses today after the United States Food & Drug Administration (USFDA) made three observations after inspecting its Halol, Gujarat plant.

India's largest drugmaker said that the USFDA conducted a Good Manufacturing Practices (GMP) inspection of Sun Pharmaceuticals Industries Ltd's Halol facility. At the conclusion of the inspection, the agency issued a Form 483 with three observations.

As per USFDA, observations are made in Form 483 when investigators feel that conditions or practices in the facility are such that products may become adulterated or render injuries to health.

Sun Pharma's US supplies were hit over the past year after the US FDA found violations of manufacturing practices at the company's Halol manufacturing unit. US FDA conducted its first inspection of the facility in 2014 and another in December 2015. The company was given a warning letter with six observations, preventing it from making fresh filings of new drug applications.

In November-December 2016, Sun Pharma's Halol plant was re- inspected and the US FDA issued Form 483 with nine observations.

At the time of writing, Sun Pharma share price was trading down by 2%

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Indian pharma companies catering to the US markets are breathing a sigh of relief. After being adversely affected by import bans and the suspension of new drug approvals from manufacturing facilities in the past three years, there has been a sharp pick-up in new drug approvals in FY17.

However, note that USFDA alerts on Indian pharma companies have increased over the past few years. Regulators used to visit the plants every two years. Now they come every eight months. Increasing inspections have led to a total of 41 import alerts in the past eight years - 33 of them (80%) in just the last four years (2013-16). This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realisations.

However, the recent development of USFDA expediting the drug approval process can bring some respite for Indian pharma companies. This comes as drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year, as can be seen from the chart below:

Expediting Drug Approval Process to be a Positive for Industry

While short-term pain is expected, companies with strong R&D capabilities and compliant plants will do well over the long term. The uncertainties make it important to be stock specific in the sector. It is important to look for companies that have the competence and staying power to overcome the challenges.

Moving on to news from stocks in the steel sector. JSW Steel share price is in focus today after media reports said that the steel major said that it is set to acquire Italy's second largest steel maker.

JSW Steel is close to finalizing a deal to acquire Aferpi, formerly known as Lucchini SpA, in a deal worth Rs 6 billion.

According to a leading financial daily, JSW Steel has been in talks with Algeria-headquartered Cevital Group on the acquisition for the last six months and is expected to make an announcement soon.

The acquisition of Aferpi by JSW comes at a time when its group company, JSW Energy, is gearing up for electric car production in India.

A foothold in Europe, one of the largest electric car markets, will enable the group to gain technical knowhow in electric vehicle production and localise manufacture of components much faster, said an analyst.

JSW Energy plans to invest about Rs 40 billion to produce e-vehicles in Gujarat and is scouting for a joint venture partner.

The deal also comes at a time when JSW steel lost out on the race to acquire the stressed assets of Bhushan Steel and Bhushan Power.

Notably, JSW steel - the county's most profitable major steel producer was in the process of raising over US$ 1.5 billion through various sources for acquiring stressed assets in the industry.

At the time of writing, JSW share price was trading up by 1%.

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