Sensex Drops 200 Points; IDBI Bank Down 5% After Fraud

Wed, 28 Mar Closing

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After opening the day in red share markets in India  witnessed negative trading activity throughout the day and ended the day below the dotted line. Sectoral indices too ended the day in red, with stocks in the pharma sector and stocks in the metal sector leading the losses.

At the closing bell, the BSE Sensex stood lower by 206 points (down 0.6%) and the NSE Nifty closed down by 63 points (down 0.6%). The BSE Mid Cap index ended the day down 0.5%, while the BSE Small Cap index ended the day down by 0.9%.

Asian stock markets too finished in red. As of the most recent closing prices, the Hang Seng was down by 2.5% and the Shanghai Composite was down by 1.4%. The Nikkei 225 was down by 1.3%. Meanwhile, European markets, too were trading on a negative note. The FTSE 100 was down by 0.1%, The DAX, was down by 0.9% while the CAC 40 was down by 0.9%.

The rupee was trading at Rs 65.19 against the US$ in the afternoon session. Oil prices were trading at US$ 64.78 at the time of writing.

In news from stocks in the banking sector. IDBI Bank share price was in focus today as the bank disclosed a Rs 7.7 billion fraud.

IDBI Bank Ltd said that fraudulent loans of Rs 7.7 billion (US$ 118.8 million) were issued from five of its branches in Andhra Pradesh and Telangana.

Some of the loans, which were issued during fiscal years 2009-2013 for fish farming businesses, were obtained against fake lease documents of non-existent fish ponds and by inflating the value of collateral, the company said.

The company found major lapses in processing and disbursing the loans by two of its officials. The Central Bureau of Investigation (CBI), has registered cases for two of the five complaints, relating to branches at Basheerbagh and Guntur, the company said.

The bank said earlier on Tuesday it initiated a quality assurance audit, expected to be completed by April.

Buffett's and Peter Lynch's principle of not watering weeds fits in perfectly well with the businesses of banking as well. Banks, in principle, must be careful about not extending loans to borrowers with poor creditworthiness or payment track record. That too, irrespective of the size of the borrower.

However, the data from State Bank of India shows that when it comes to big corporate borrowers, our banks literally look the other way. The share of large corporates, in total advances of the banking sector, has almost remained unchanged over past three years (at an average of 55%).

However, their contribution to incremental slippages has been huge. At one point, the big corporate borrowers accounted for nearly 90% of total NPAs of the sector.

Therefore, according to us, banks with large corporate books (be it PSUs or private sector) deserve a lower valuation if they can't keep NPAs in check.

IDBI Bank share price ended the day lower by 5.5%.

Moving on to news from stocks in the pharma sector. Alkem Labs share price ended the day on a weak note as the US Food and Drugs Administration (USFDA) noted 14 observations for objectionable conditions at its manufacturing units at Amaliya in Daman and St Louis in the US following inspections.

The USFDA had conducted an inspection at the Daman unit from March 19-27, 2018.

Post the inspection, the company has received a Form 483 with 13 observations.

As per the USFDA, Form 483 notifies the company's management of objectionable conditions based on observations made by its investigators about the conditions or practices which would 'indicate that any food, drug, device or cosmetic has been adulterated or is being prepared, packed, or held under conditions whereby it may become adulterated or rendered injurious to health.'

The company further said the USFDA had also conducted an inspection at its manufacturing unit at St Louis from March 12-15, 2018.

In response to one Form 483 observation issued by the USFDA, it has submitted a detailed corrective and preventive action plan to the regulator within the stipulated timeline.

Alkem Labs share price ended the day down by 5.5%.

BSE Healthcare Index Down 26% in Three Years

Is this the right time to buy pharma stocks?

There was a time when almost every stock in the pharma sector was considered to be a safe stock. You could just pick the top 5-6 companies from this sector and expect to make decent returns over time.

In fact, it was termed as defensive sector. However, in last two years things have changed a lot. There is enormous uncertainty in the industry.

Uncertainty regarding price erosion in the United States as well as hostile US FDA visits, have changed a once defensive sector into a risky sector.

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

And here's a note from Profit Hunter

It was a short trading week for the Indian stock markets. The Nifty 50 Index traded on a positive note during the week.

On Monday, it opened the session down, but witnessed solid buying interest to end the session 133 points up. Subsequently, the positive momentum continued for the next trading session. But the index slipped 63 points down on the futures and options (F&O) expiry day. The index finally ended the weekly session 1.23% up.

Last week, we saw the index closing below its 200 day moving average (DMA), which acted as a good support in the past. But now the 200 DMA is acting as a good resistance (previous support act as a resistance post the break-out)

This week, the 10,000-10,100 zone which acted as a good support in the past saved the index from dropping further down.

So can the index hold this support zone in the week to come or will it break out of the zone to continue sliding down? The derivative and rollover data can shed some light on this. Read our detailed analysis on the derivatives data in Monday's Profit Hunter Pro newsletter (subscription required). To subscribe, click here.

Nifty 50 Index Trades on a Positive Note

 

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