Sensex Ends 318 Points Up; Realty & Banking Stocks Rally

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Indian share markets ended higher today as Asian equities rose on hopes that US President Donald Trump's plan to introduce hefty tariffs on steel and aluminium imports could exclude certain key partner countries. At the closing bell, the BSE Sensex finished higher by 318 points. While, the NSE Nifty finished higher by 88 points. Meanwhile, the <>S&P BSE Midcap Index and S&P BSE Small Cap Index ended up by 0.6% & 0.5% respectively.

Barring metal stocks, healthcare stocks & FMCG stocks, all sectoral indices ended the day in green with capital goods stocks, realty stocks and bank stocks leading the gainers.

Overseas, Asian stock markets finished broadly higher today with shares in Hong Kong leading the region. The Hang Seng is up 1.53% while Japan's Nikkei 225 is up 0.54% and China's Shanghai Composite is up 0.51%. European markets are mixed. The CAC 40 is higher by 0.30%, while Germany's DAX is off 0.02%. Shares in London are unchanged with the FTSE 100 at 7,158.

The rupee was trading at Rs 64.92 against the US$ in the afternoon session.

Pharma stocks ended the day on a mixed note with Indoco Remedies & Panacea Biotech leading the gainers. Zydus Cadila has entered into a definitive agreement with Medicure International Inc., a subsidiary of Medicure Inc. (Medicure) to commercialize its New Drug Application (NDA) product, pitavastatin magnesium (ZYPITAMAG) in the United States.

Reportedly, the launch of ZYPITAMAG, which is used to manage cholesterol levels, marks the first branded product launch for Zydus in the US.

Medicure is a US pharmaceutical company and has a proven track-record of successful commercialization of products in the therapeutic segments of cardiovascular and metabolic diseases.

As a part of this agreement, Zydus will hold the NDA and Medicure will be responsible for the sales and marketing of ZYPITAMAG.

One shall note that, 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 tell a different story though. 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.

The top generic companies are trying to move toward low competition drugs, which can be seen by their R&D expenditure towards complex generics. This though will take time and substantial expenditure. It might also mean muted earnings in the next couple of years, before the drugs are distributed into the market.

2018 looks likely to be another challenging year for the sector. The uncertainties make it important to be stock specific in the sector. Focus on value and the underlying fundamentals of the business.

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Cadila Healthcare share price ended the day up by 2.7%.

Moving on to the news from the economy. In the latest development, the Union Cabinet has given its nod to a relief package for the financially-stressed telecom sector.

Reportedly, the government agreed to allow more time to the telecom operators to pay for the spectrum bought in auctions, under the new plan and also relaxed the spectrum holding limit for telecom companies to 35% from 25% at present.

These measures are expected to increase the cash flow for telecom operators immediately, providing the operators some relief. Besides, revising the limit for spectrum holding will facilitate consolidation of telecom players and may encourage their participation in future auctions, the reports noted.

Last year, the Inter Ministerial Group (IMG) was tasked to suggest policy reforms and strategic interventions for the troubled sector bruised by falling tariffs, eroding profitability and mounting debt in the face of stiff competition from new entrant Reliance Jio. The IMG, in its recommendations submitted last year, had mooted the extension of time period for the payment of spectrum bought in auctions by operators to 16 years from the current 10 years.

At present, a portion of spectrum auction amount is taken as upfront payment by Department of Telecommunications (DoT), and the rest after a two-year moratorium is paid out every year in 10 installments.

The Telecom Commission, which is the highest decision making body at the Department of Telecom, had also approved sectoral regulator Trai's recommendation that the ceiling on spectrum held by mobile operators within a particular band be removed. It had suggested 50% cap on combined radiowave holding in efficient bands.

One shall note that, the whole telecom business has been an underwhelming story so far. While the telecom subscriber base has increased from 300 million in 2008 to 1.2 billion in 2017, investors have little to cheer.

The BSE Sensex has gone up 3.25 times in nine years, but the BSE Telecom Index has not moved an inch from its levels of 2008.

Telecom companies are straddled with high debt, intense competition, and lack of pricing power. High spectrum costs and regulatory issues have hampered the sector.

While consumers have benefited from low costs and new players fighting for their share, investors have suffered.

Going forward, whether the situation will change in the future will be the key thing to watch out for.

And here's a note from Profit Hunter:

After falling for six consecutive days, the Nifty 50 Index witnessed buying interest in today's sessions. The index is up 100 points. But few stocks are still under pressure. Power Finance Corporation (PFC) is down 3.5%, despite the market gaining. But the stock is now trading at a very interesting point.

The last time we reviewed the stock, it was trading at a very important support level of 115. But it did not hold the support and kept falling down. The stock is down more than 17% in past seven trading sessions. Today, it dropped to a new 52-week low of 89.

Currently, the stock is trading at its very important support zone of 90 - 92.

So it will be interesting to see if the stock can find support here and bounce up with the market? Or will the weak price action lead the stock to break this support zone, as well?

PFC Near Its Important Support Zone

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