Sensex Continues Momentum; Metal Stocks Gain

Tue, 27 Mar 01:30 pm

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After opening the day firm, share markets in India have continued the momentum and are trading above the dotted line. Sectoral indices are trading on a positive note with stocks in the metal sector and stocks in the PSU sector leading the gains.

The BSE Sensex is trading up by 111 points (up 0.3%), and the NSE Nifty is trading, up by 40 points (up 0.4%). Meanwhile, the BSE Mid Cap index is trading up by 1.1%, while the BSE Small Cap index is trading down by 1.4%. The rupee is trading at 64.82 to the US$.

Glenmark Pharma share price was in focus today, after it was reported that the company received a ANDA (abbreviated new drug application) approval from the United States Food & Drug Administration (USFDA) for Clobetasol Propionate Spray.

The drug is a generic version of Galderma Laboratories' Clobex Spray.

According to IQVIATM sales data, the Clobex Spray had sales of around US$ 30.5 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.

Dr Reddys share price ended the day up by 0.8%.

In news from the GST space. The Goods and Service Tax (GST) Council and the government has notified April 1 as the implementation date for the electronic way or e-way bill, which will be required for transporting goods valued over Rs 50,000 between states.

The 26th GST Council meeting had in its meeting on March 10 decided on e-way bill roll out and extension of 3B filing facility.

E-way bills will automate the paperwork for goods transportation, check instances of inflating or under-reporting the value of consignments aimed at tax evasion, create an electronic trail of goods movement and generate valuable data about goods consumption pattern across the country.

The scheme, earlier proposed to be enforced from 1 February was deferred on the same day due to technical glitches. Policymakers now do not want premature roll out of the scheme risking a trade disruption.

Wary of system collapsing like it happened when the e-way bill was first introduced on February 1, the Council decided to rollout the requirement of carrying the permit for intra-state movement in a staggered manner. While inter-state e-way bill being implemented from April 1, there would be a phased roll out for intra-state movement of goods beginning April 15.

Once implemented, e-way bill is needed for all movement of goods valued at more than Rs 50,000. within or outside a state.

The e-way bill, which would be required to be presented to a GST inspector if asked for, is being touted as an anti-evasion measure and would help boost tax collections by clamping down on trade that currently happens on cash basis.

A Large Increase in Registered Indirect and Direct Taxpayers

Since the launch of Goods and Services Tax (GST), there were 9.8 million unique GST registrants, an increase of 50% compared to the previous tax regime. There has also been a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises wanting to avail themselves of input tax credits.

Similarly, after November 2016, 10.1 million tax filers were added compared to an average of 6.2 million in the preceding six years. Further analysis suggests that new filers reported an average income, in many cases, close to the income tax threshold of Rs. 2.5 lakh, limiting the early revenue impact. As income growth pushes many of the new tax filers in time over the threshold, the revenue dividends should increase robustly.

These changes can have profound effects on the Indian economy. With the increasing tax base, the government will have a significant amount of resources to spend on infrastructure, health and education, While the fiscal deficit will be stable.

As organized players gain market share, it will begin to reflect in corporate earnings and stock prices too.

Every coin has two sides. GST is no exception. It has had its fair share of chaos in the months immediately post its implementation from 1 July 2017. Many businesses reported depressed earnings due to the transition to GST.

Our colleague Vivek Kaul has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report - The Good, the Sad and the Terrible (GST).

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

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