A Flat Start to FY17

Fri, 1 Apr 09:30 am

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Major Asian stock markets have opened the day on a negative note with stock market in Japan and Hong Kong trading lower by 3.18% and 1.32%, respectively. Benchmark indices in Europe ended their previous session on a disappointing note while US markets ended their previous session on a positive note. The rupee is trading at 66.40 per US$.

Indian stock markets have started day on a flattish note. The BSE Sensex is trading lower by 31 points (down 0.1%) and NSE Nifty is trading lower by 13 points (down 0.2%). BSE Mid Cap and BSE Small Cap are trading higher by 0.3% and 0.5%, respectively. Sectoral indices have opened the day on a mixed note. Stocks from FMCG, capital goods and realty sectors are witnessing buying interest.

Fiscal 2016 was a bad year for Indian markets. In fact, Sensex witnessed highest loss in last five years. Both global and domestic factors have impacted the market sentiments. Eyes are now on Reserve Bank of India (RBI)'s next monetary policy which is scheduled for April 5, 2016. In fact, Vivek Kaul has written quite an interesting piece on this subject.

According to him, "RBI should not cut the repo rate by 1%, or at least not all at once". He highlights multiple reasons for the same. Interest rates need to be viewed from the point of view of savers as well rather than just borrowers. But what if Dr Rajan decides to cut the rate by 1%?

As Ajit Dayal, founder of Equitymaster, states , in one of his recent articles that there are enough reasons for the RBI to take steep cut in the rate. According to Mr Dayal, people will borrow and spend more at lower interest rates. This will result into higher consumption. The impact of this will be seen in the earnings of companies and the stock prices will adjust for it.

However, a 100 basis points cut by the RBI will lead to banks cutting the interest rates on their deposits without cutting their lending rates at the same rate. If the interest rates are cut dramatically, the saver will have to save more to meet his or her financial goals, in the years to come.

As per an article in leading financial daily, Mahindra and Mahindra Ltd (M&M) will buy a 35% stake in Finland's Sampo Rosenlew Oy. The deal is pegged at a sum of 18 million Euros. The management stated that the deal is part of a larger strategy to reduce the company's dependence on tractors, strengthen farm equipment business and enter newer markets.

The two companies will jointly focus on the combine harvester business in Asia, Africa and Eurasian Economic Union countries. Further the management stated that the partnership is part of Mahindra's strategy to build a full product line of farm equipment that goes beyond tractors and with this it will compete globally in both advanced and developing markets.

Reportedly, this is the second deal that Mahindra has inked in the segment in less than a year. In May, the company had bought 33% in Japan's Mitsubishi Agricultural Machinery Co. Ltd for 3 billion yen with the objective of jointly developing products such as tractors and farm equipment.

Rosenlew had revenues of 93 million Euros in 2014-15 and was a cash-positive and profitable firm. It sells its machines in more than 50 countries and exports approximately 90% of its products. Its main markets are Europe, CIS countries and North Africa.

We believe that the above stake purchase will aid M&M's revenues and give an additional boost to its performance levels. Apart from the above development, the company has successfully completed all the planned launches in the current year. This will also have a burgeoning effect on the financials of the company for FY17. As we have stated in our result analysis report of the company (subscription required) ... 'M&M has completed all the nine product launches in the current year. The company expects the full impact of these new launches to be reflected in the financials of FY17.'

Stock of M&M is presently trading down by 1.5%.

In another news update it was reported that Lupin's US subsidiary - Lupin Pharmaceuticals has launched its Donepezil Hydrochloride tablets. The launch comes as the company has received approval from the United States Food and Drug Administration (US FDA) earlier to market a generic equivalent of Eisai Inc's Aricept Tablets.

Lupin's Donepezil Hydrochloride Tablets are the AB rated generic equivalent of Eisai Inc's Aricept Tablets. The product is indicated for the treatment of dementia of the Alzheimer's type.

Lupin will manufacture and supply the product to the US from its Goa facility.

According to IMS MAT December sales data, Aricept had sales of US$47.1 million in the US market.

On a separate note, the company has recently received a total of three observations relating to violation of production norms at manufacturing facilities at Mandideep, Madhya Pradesh from the US Food and Drug Administration (USFDA).

Further, earlier to this, the company had received nine observations relating to inadequacy and adherence to operating norms for manufacturing plant in Goa from the USFDA. As we had stated in our result analysis report of the company (subscription required) ... 'The company continues to work with the US regulators for the clearance of 483s on its Goa plant. We have already seen major Pharma biggies facing pressures from the USFDA on this front. Hence, any negative development would impact the company.'

Lupin is a significant player in the Cardiovascular, Diabetology, Asthma, Pediatric, CNS, GI, Anti-Infective and NSAID space. The company holds global leadership positions in the Anti-TB and Cephalosporin segment. Presently the stock of the company is trading down by 0.6%.

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