Sensex Opens Marginally Up; FMCG & Healthcare Stocks Gain

Wed, 18 Apr 09:30 am

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Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 1.3% while the Hang Seng is up 0.2%. However, the Shanghai Composite is trading down by 0.5%. Overnight strong corporate earnings helped US stocks closed with gains.

Meanwhile, Indian share markets have opened the day marginally up. BSE-Sensex is trading higher by 42 points and NSE-Nifty is trading higher by 15 points. S&P BSE Mid Cap and S&P BSE Small Cap, both are trading up by 0.2%.

Gains are largely seen in FMCG stocks and healthcare stocks. While, consumer durables stocks and bank stocks have opened the day in red. The rupee is trading at Rs 65.61 against the US$.

In news from pharma sector, the race for Fortis Healthcare Limited has intensified with the company receiving an unsolicited non-binding expression of interest from Fosun Health Holdings Limited, a wholly-owned subsidiary of Fosun International Limited.

It is a company listed on the Hong Kong Stock Exchange.

The offer comes with a proposal of primary infusion at a price up to Rs 156 a share, subject to due diligence to be completed within three weeks, up to a total investment of US$350 million (including a preliminary investment of up to Rs 1 billion).

Interestingly enough, the Fosun offer comes just a couple of day before the board of Fortis meets to decide on the bids. The board is scheduled to convene on April 19.

Reportedly, Fosun had stated in its offer letter it could immediately provide Rs 1 billion to Fortis to take care of its immediate cash needs within the next 45 days, including the option of immediately subscribing to a debt instrument.

This money could be infused provided Fortis agreed to extend a short one month of exclusivity to undertake due diligence and negotiate the deal, the reports noted.

The race for Fortis took an interesting turn when Malaysia's IHH Healthcare Berhad offered to buy the company at Rs 160 per share. Earlier last week, Fortis received a sweetened offer from Manipal Hospitals Enterprises Pvt. Ltd. and TPG at Rs 155 per share.

Hero Enterprise Investment Office and the Burman Family Office have also made a binding offer to invest a total of Rs 12.5 billion through a preferential share allotment of at least Rs 156 a share.

Fortis Healthcare share opened the trading day up by 2.1% on the BSE.

Moving on to the news from the economy. As per the International Monetary Fund (IMF), India is expected to grow at 7.4% in 2018 and 7.8% in 2019, leaving its nearest rival China behind respectively at 6.6% and 6.4% in the two years.

As per the report, with growth picking up after falling sharply in the second quarter of 2017 due to "one-off factors", India, in 2018 and 2019, would re-emerge as one of the fastest growing major economies.

The IMF, in the latest World Economic Outlook (WEO), has projected India to grow at 7.4% in 2018 and 7.8% in 2019. China is expected to grow respectively at 6.6% and 6.4% in the two years.

However, the latest IMF growth rate projection remains unchanged since the last one in October. India's growth rate in 2016 was 7.1% as against China's 6.7%.

One shall note that, two major economic reforms - demonetisation and goods and services tax (GST) - resulted in a slight lower growth rate of 6.7% in 2017.

China, with 6.9% growth, jumped marginally ahead of India in 2017. India's projected growth provided some offset to China's gradual slowdown, the IMF said.

According to the IMF, India has made progress on structural reforms in the recent past, including through the implementation of the GST, which will help reduce internal barriers to trade, increase efficiency and improve tax compliance.

While the medium-term growth outlook for India is strong, an important challenge is to enhance inclusiveness, the IMF stated.

India's high public debt and recent failure to achieve the budget's deficit target, calls for continued fiscal consolidation into the medium term to further strengthen fiscal policy credibility.

The main priorities for lifting constraints on job creation and ensuring that the demographic dividend is not wasted are to ease labour market rigidities, reduce infrastructure bottlenecks, and improve educational outcomes, the report stated.

Meanwhile, 2017. What a year this has been for equity investors...

The BSE Sensex is trading close to 34,000 mark. The Nifty is trading above 10,500 levels.

Who would have thought the markets would keep climbing higher?

This is despite the sluggishness in corporate earnings thanks to the lingering effects of demonetization and GST implementation. Not to mention, uncertainties from international arena such as tensions between the US and North Korea, Middle-East geopolitics, and three fed hikes in 2017 that kept the market on tenterhooks.

India was among the three emerging markets, which gained more than 35% in dollar terms. The other two are Hungary and South Korea.

So, how will 2018 turn out?

In 2018, the market would be more volatile and under pressure. Investors should brace themselves for the increasing volatility. Although, earnings are likely to recover, profit margins could get squeezed as companies face rising input cost pressures. Rising oil prices may prompt the government to abandon fiscal prudence at a time when GST collections have been lower than expected.

2018 will, therefore, be critical for Indian companies to justify their valuations with earnings growth.

If the earnings growth does not materialize, correction could be on the cards.

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