IT, pharma stocks buck the trend

Wed, 5 May 11:30 am

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The benchmark indices languished in the red as investors continued to book profits during the last two hours of trade. Strong selling is seen in stocks from the metals, consumer durables and realty spaces. Stocks from the capital goods and banking spaces are also seeing some pressure. Healthcare and IT stocks on the other hand are trading firm.

BSE-Sensex is trading lower by 215 points while NSE-Nifty is trading 75 points below the dotted line. While the BSE-Midcap Index is trading lower by about 91 points (down 1.3%), smallcaps are under more pressure as the BSE-Smallcap Index is down by about 140 points or 1.5%. The rupee is trading at 44.93 to the US dollar.

Stocks of tyre manufacturers are trading mixed with Apollo Tyres trading firm, while Ceat and MRF are trading weak. On the back of rising input prices, tyre manufacturers have been facing tough times in the recent past. A leading business daily has reported that the association representing the tyre manufacturing community, the Automotive Tyre Manufacturers' Association (ATMA) recently approached the prime minister’s office for seeking a solution to the rising input problem. However, since there has been no action taken regarding the same, tyre manufacturers are now mulling over a strong 25% price hike to offset the impact of rising input costs. The tyre industry had demanded that the government scraps the 20% import duty on natural rubber as well as ban futures trading of the commodity. In addition, the industry has also demanded an increase in duty on finished products. It must be noted that many tyre manufacturers have increased prices in the recent past. However, since they continue to face difficult times, they will have to resort to further price hikes.

The production of natural rubber, one of the key raw materials for manufacturing tyres is under pressure following the poor monsoons last year. It is believed that India is going to face a shortfall of about 175,000 tonnes of natural rubber this year. Last year the same figure stood at 100,000 tonnes.

IT stocks are currently trading firm led by Patni Computers, HCL Technologies and Wipro. The stock of HCL Technologies is trading firm on the back of the company bagging a large US$ 500 m (approx Rs 23 bn) deal from Merck & Co. Merck is a pharmaceutical company based in the US. This contract is spread over a period of five years and revenues from the same are likely to flow in from the current quarter. As part of the deal, HCL will provide various services such as remote infrastructure management (RIM), software led IT solutions, engineering and back office services.

HCL derives nearly 8% of its revenues from the healthcare and pharmaceutical space. This large deal signed does indicate that it is aggressively targeting additional revenues from this. In addition, this development indirectly comes in as good news for the Indian IT space, especially those companies that are vying opportunities in the global healthcare and pharmaceutical space. It is believed that the healthcare and pharmaceutical sectors, globally, present a US $47 bn outsourcing opportunity. This segment has been growing at a steady pace of 2% to 3%.