Sensex Surges 470 Points; Bank Stocks Top Gainers

Mon, 26 Mar Closing

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After opening the day in red share markets in India witnessed volatile trading activity throughout the day and ended the day firmly in green, after a strong rally at the wee end of the session. Sectoral indices too ended the day in green, with stocks in the bank sector and stocks in the metal sector leading the gains.

At the closing bell, the BSE Sensex stood higher by 470 points (up 1.4%) and the NSE Nifty closed up by 133 points (up 1.3%). The BSE Mid Cap index ended the day up 1.2%, while the BSE Small Cap index ended the day up by 0.7%.

Asian stock markets finished mixed, as fears about a trade war between US and China seemed to dissipate. As of the most recent closing prices, the Hang Seng was up by 0.8% and the Shanghai Composite was down by 0.6%. The Nikkei 225 was up by 0.7%. Meanwhile, European markets, too were trading on a positive note. The FTSE 100 was up by 0.3%, The DAX, was up by 0.7% while the CAC 40 was up by 0.4%.

The rupee was trading at Rs 64.87 against the US$ in the afternoon session. Oil prices were trading at US$ 65.6 at the time of writing.

In the news from the IPO space, the initial public offer of Lemon Tree Hotels Ltd which opened for subscription today, was subscribed by over 16% at the time of writing.

The proceeds from this IPO of around Rs 10.9 billion will go to the selling shareholders. None of the promoters are selling their shares in this IPO and thus their holdings post the IPO will remain the same at 29.16%.

Lemon Tree Hotels Ltd. is the India's largest hotel chain in the mid-priced hotel sector, and the third largest overall, on the basis of controlling interest in owned and leased rooms, as of June 30, 2017 (as per the Horwath Report). It is also the ninth largest hotel chain in India in terms of owned, leased and managed rooms, as of June 30, 2017. The company operates in the mid-priced hotel sector, consisting of the upper-midscale, midscale and economy hotel segments.

A significant part of the company's revenues (57% in FY17) comes from the corporate customers. The company opened its first hotel in 2004 and the count as of 31 July 2017 stood at 40.

To know our view on this IPO, you can read our IPO note on Lemon Tree Hotels Ltd (requires subscription).

SME IPO Boom in 2017

We've constantly mentioned how the IPO euphoria has peaked in recent times. It now looks like the smaller companies have also joined the party. The recent SME IPO data for 2017 certainly seems to suggest so.

The amount raised by SME IPOs in 2017 stood at 17.85 billion, more than three times the amount raised in 2016. The number of SME IPOs launched also doubled from 66 to 132.

With big ticket IPOs in the limelight in 2017, SMEs have also joined in to get a share of the pie. If past history is anything to go by, the IPO wave has generally been followed by a market correction. That too major ones. We've seen stocks debut just before the 2000-01 dotcom bubble. Then the IPO euphoria in 2008 was followed by the sub-prime crisis.

While it doesn't make sense to completely ignore this space, a certain sense of caution is definitely merited.

Dr Reddy's share price ended the day higher, after it was reported that the company launched Palonosetron Hydrochloride Injection, after getting approval from the United States Food & Drug Administration (USFDA).

The drug is indicated for the treatment of acute nausea and vomiting and is generic version of Helsinn Healthcare SA's Aloxi.

According to IMS Health sales data, the Aloxi brand and its generics had sale of around US$ 446 million in the US for the twelve months ended January 2018.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.

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.

ended the day up by 0.8%.

Keywords: BSE Sensex, BSE, NSE Nifty, NSE, Indian stock markets, BSE Midcap, BSE Smallcap, Rupee Dollar exchange rate, Indian equity market indices, BSE small cap index live, dr reddys, pharma, new drug, usfda, new drug approval, us pharma, pharma sector, healthcare sector, drredys share price, ipo, new ipo, lemon tree ipo, ipo price, lemontree subscription price, ipo valuation.

Description: The BSE Sensex ended the day up by 470 points, while the NSE Nifty closed higher by 133 points.

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