Sensex Opens Flat; Divi's Lab Tanks 18%

Tue, 21 Mar 09:30 am

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Asian equity markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.15%, while the Hang Seng is up 0.32%. The Nikkei 225 is trading down by 0.27%. European & the US stock markets closed mixed in their previous trading session.

Meanwhile, Indian share markets have opened the flat with the positive bias. The BSE Sensex is trading up by 27 points while the NSE Nifty is trading up by 9 points. The BSE Mid Cap index opened flat while BSE Small Cap index opened down by 0.1%.

Sectoral indices have opened the day on a mixed note with fast moving consumer goods sector and capital goods sector leading the pack of gainers. While, healthcare stocks and bank stocks are witnessing maximum selling pressure. The rupee is trading at 65.38 to the US$.

D-Mart parent Avenue Supermarts, which recently concluded its Rs 18.7-billion initial public offering (IPO), has listed its shares on bourses today. The D-Mart IPO, the biggest since PNB Housing Finance's Rs 30 billion offer in October last year, was subscribed more than 104 times earlier this month.

Rohan Pinto, our Research Analyst, released the Equitymaster IPO note recently. In this detailed report, Rohan not only evaluates the company's business performance, but answers the crucial question about valuations. Find the entire report here (Subscription required).

Divi's Lab share price plunged 18% in early trade after USFDA issued an import alert for company's Vishakhapattanam unit II. The unit contributes 60-65% to the total sales and 20-21% to US sales.

Information technology stocks are trading mixed with HCL Technologies and HCL Infosys being the most active stocks in this space. The board of HCL Technologies has approved a buyback plan aggregating to Rs 35 billion.

According to the reports, the company plans to buy back 35 billion equity shares at a price of Rs 1,000 per share. The equity shares represent 2.48% of the fully paid-up equity shares of the company as on 31 March 2016. The offer size of Rs 35 billion is 13.62% of the company's free reserves as on 31 March 2016.

IT companies are under increasing pressure from investors to utilize the huge cash pile on books either through a share buyback or generous dividend.

Notably, HCL Tech's buyback follows those by larger rivals Tata Consultancy Services and Cognizant. Infosys has asked shareholders to approve an amendment to its articles of association to allow it to buyback shares.

The cash on the books of large Indian IT firms is legendary. At the end of 2016, the top three firms - Infosys, TCS, and Wipro - had cash and current investments of Rs 304.8 billion, Rs 386.7 billion, Rs 331.6 billion. That's a lot of cash! And the pile grows every year. This seems to be a good problem to have.

Flush With Cash

Tanushree Banerjee, Co-head of Research has written everything you need to know about the share buybacks in the IT sector and has offered insights on how the firms deal with the huge cash piles (Subscription Required). Here's a snippet of what she wrote:

• "So, what should long-term investors do? There's no doubt that tendering a part of your shares in a buyback could be a tempting proposition, especially if the buyback price is higher than the market price.
  
  However, it's important to understand that buybacks reduce the outstanding number of shares. Thus, the shareholders who don't tender their shares will end up with a bigger piece of the pie."

HCL Technologies share price opened the day up by 0.6%.

Moving on to the news from stocks in pharma sector. According to a leading financial daily, United States Food & Drug Administration (USFDA) has granted tentative approval to Glenmark Pharmaceuticals Inc., USA (Glenmark) for Fingolimod Capsules, 0.5 Mg.

The tablet is a generic version of Gilenya Capsules of Novartis Pharmaceuticals Corp. These capsules are used in the treatment of adult patients with relapsing forms of multiple sclerosis.

As per IMS Health sales data for the 12-month period ended January 2017, Gilenya capsules 0.5 mg had annual sales of approximately US$2.03 billion.

Glenmark's current portfolio consists of 112 products authorized for distribution in the US marketplace and approximately 65 ANDA's pending approval with the USFDA, the reports noted.

In another development, a class-action suit is filed in a Pennsylvania federal court last week against Sun Pharmaceutical Industries Ltd in the US for colluding with Mylan for conspiring to raise the price of generic asthma medicine.

The complaint stated that Sun Pharmaceuticals and Mylan had raised their prices for albuterol sulfate over 3,000 per cent between October 2013 and April 2014.

Meanwhile, in an edition of The 5 Minute WrapUp, we wrote about the USFDA crackdowns faced by the Indian Pharma in the recent times and how they have been constantly investing towards R&D. We believe pharma companies that are upgrading and keeping facilities compliant, and have niche product pipelines in place will see sustained revenue growth going forward.

According to a report by The Hindu Business Line, in spite of the prevailing challenges in the Indian pharma sector is expected to grow up to 45% by 2025 and 58,000 additional employment opportunities are likely to be created in the industry amid the job crisis in India.

Despite the capping of prices, notebandi and GST implementation, all of which are perceived to impact the pharma sector adversely (subscription required), the industry will continue to grow. In fact, by 2020, the pharma market will be touching US$ 55 billion, with a CAGR of about 15.9%.

Glenmark Pharma share price & Sun Pharma share price opened the day down by 0.3% & 1.6% respectively.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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