Sensex Opens Flat; Realty & Consumer Durables' Stocks Gain

Mon, 26 Mar 09:30 am

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Asian stocks are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.40% while the Hang Seng is down 0.85%. The Shanghai Composite is trading down by 1.53%. US stocks fell sharply on Friday, adding to their steep weekly losses, as investors assessed the possibility of a trade war brewing between the US and China.

Back home, India share markets opened the day on a flattish note. The BSE Sensex is trading higher by 33 points while the NSE Nifty is trading higher by 6 points. The BSE Mid Cap index and BSE Small Cap index both opened the day up by 0.3%.

Barring information technology stocks & FMCG stocks, all sectoral indices have opened the day in green with realty stocks and consumer durables stocks witnessing maximum buying interest. The rupee is trading at 65.13 to the US$.

Cadila Healthcare share price surged 2.7% on the reports that Zydus has received USFDA Nod For Metoprolol Succinate Extended-Release Tablets.

Is this the right time to buy pharma stocks?

There is enormous uncertainty in the industry. Uncertainty regarding price erosion in the United States as well as hostile U FDA visits, have changed a once defensive sector into a risky sector.

BSE Healthcare Index Down 26% in Three Years

However, we believe this could be point of consolidation in the industry i.e. with stricter norms, lower margins, and pricing pressure, the industry may see many exits and acquisitions. This could lead to relatively fewer but higher quality players.

We, at Equitymaster believe, if you can pick a niche company with good financials and strong management, this is a good time to consider pharma stocks.

In the news from the economy. As per industry body Assocham, the escalation of global trade protectionist measures into a "full-scale global trade war" will damage the Indian economy as well.

Reportedly, global trade war may impact the country's exports and enlarge its current account deficit (CAD).

Tensions in the market look quite justified, as Trump's move to levy tariff on trading partners could lead to a further retaliation against the US. Though India may not get much of a direct impact, the collateral damage could be in the form of adverse impact on the overall sentiment, the reports noted.

A further erosion in "market confidence" can also lead to an outflow of portfolio investment thereby "taking a toll on the dollar rates".

Besides, as the US dollar is used as a safe haven in the midst of global uncertainties, its increased demand would put pressure on the Indian currency along with those of the other currencies of the emerging markets.

The chamber asked the government to formulate a backup plan which should include opening bilateral trade with key trading partners, to insulate the country from the impacts of protectionist measures.

Moving on to the news from the oil & gas sector. As per an article in a leading financial daily, Oil and Natural Gas Corp (ONGC) may buy out Gail India in its Dahej mega petrochemical project in Gujarat to take full control of the recently commissioned plant.

Reportedly, Gail had in 2008 picked up a 19% stake in ONGC Petro-additions (OPaL), which was then building the mega petrochemical complex at Dahej in Gujarat.

But the project, which started in 2006, faced major cost and time overruns, which forced Gail to restrict its equity contribution to the original Rs 9.96 billion. This investment in the expanded project cost meant that the gas utility's stake dropped first to 17%, then to 15.5% and now about 9%, the reports noted.

The 1.1 million tonnes plant, which at the time of conception was projected to cost Rs 124.4 billion, got completed only last year for about Rs 300 billion.

After Gail in 2008 agreed to pick up a 19% stake in OPaL, the project cost was in 2010 was revised to Rs 195.4 billion. It was couple of years later further revised upwards to Rs 213.96 billion with December 2013 set as the commissioning date.

When project cost was revised to Rs 195.4 billion, Gail decided to restrict its participation to 17%. This was done because the firm's board had powers to approve an investment of only up to Rs 10 billion.

Consequently, it decided to make an equity contribution of Rs 9.96 billion towards the 17% stake. But when the project cost went up further to Rs 213.96 billion, the promoter's equity contribution increased from Rs 58.6 billion to Rs 64.2 billion at 70:30 debt-equity ratio.

Gail is not inclined to make any additional equity contribution and has decided to cap its investment in OPaL at the capital it has already approved - Rs 9.96 billion.

ONGC share price opened the day up by 1%.

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