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Sensex Starts the Week on a Firm Note; Dr Reddy's Lab Surges 3.2%
Mon, 15 May Closing

Indian share markets continued to trade in green in afternoon session after consumer inflation in April eased to its lowest in at least five years. At the closing bell, the BSE Sensex stood higher by 134 points, while the NSE Nifty finished up by 45 points.

Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished up by 1.3% and 0.8% respectively. Gains were largely seen in metal stocks, pharma stocks and realty stocks.

Time to Be Fearful?

The markets are touching new highs. Markets are awash with funds. Experts are justifying high valuations. The reasons are far-fetched - from GST to Make in India to a cashless economy. And retail investors seem to be falling for it.

One must note that currently, in most of the cases, it is liquidity driving the valuations, and not fundamentals. And this is exactly the time when one must allow fear to substitute greed. Also, this is precisely the time when it is most difficult to overpower greed and stay disciplined.

Most Asian equity markets rose in today's trade, with Hong Kong achieving a sixth successive gain, as traders brushed off another set of disappointing US economic figures. The Hang Seng gained 0.86% and the Shanghai Composite rose 0.22%. However, Nikkei 225 ended 0.1% lower on the back of a stronger yen. European markets are mixed. The FTSE 100 is higher by 0.13%, while the DAX & the CAC 40 are down 0.28% and 0.18% respectively.

The rupee was trading at Rs 64.12 against the US$ in the afternoon session. Oil prices were trading at US$ 49.04 at the time of writing.

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The Reserve Bank of India (RBI) in its latest report has expressed optimism in Goods & Services Tax (GST) and stated that it could be the best bet for state governments. RBI said that GST is expected to bolster states' revenue and anchor fiscal consolidation without compromising on expenditure quality.

It has further said that the new tax regime is also likely to strengthen cooperative federalism and would have far-reaching implications for growth, inflation, public finances and external competitiveness in the Indian economy.

The report titled 'State Finances: A Study of Budgets of 2016-17' analyzing the fiscal position of state governments, has noted that thorny issues on implementation of GST should be addressed through a robust dispute resolution mechanism and it expects that GSTN would provide the necessary IT infrastructure to all stakeholders.

The Central Bank has further stated that from a medium-term perspective, debt sustainability of states is likely to be the key factor in shaping the evolving contours of state finances. The report has also stated that the macroeconomic impact of introduction of the GST could turn out to be significant in the years ahead, given the dominance of the services sector in India.

It has added that GST implementation is likely to boost the small and medium scale enterprises (SME) sector by improving their ease of doing business, lowering logistical costs, extending outreach beyond state borders and aiding SMEs dealing in sales and services.

Moving on to news from oil & gas sector. Indian Oil Corporation (IOC) share price was up 1.6% in today's trade after it was reported that the company will be investing an estimated Rs 150 billion in expanding the refining capacity of Gujarat Refinery.

Gujarat Refiner, the company's flagship refinery located at Vadodara, is looking to expand the refinery to 13.7 million metric tonnes per annum (MMTPA) to 18 MMTPA. The quality upgradation will help the refinery produce Bharat Stage (BS) - VI fuel by 2020.

Among other investments in Gujarat, IOC is in the process of setting up a 8 MW (megawatt) solar power project at its LPG bottling plant at Sanand. The company also operates 63 MW wind power project in Gujarat.

In another development, IOC is reportedly planning to add additional capacity of 1 million tonnes per annum (MTPA) or Liquified Natural Gas (LNG) at Petronet LNG's Dahej terminal, which is being expanded from existing 15 MTPA capacity to 17.5 MTPA.

This comes in addition to the one million tonnes per annum of capacity IOC booked in the proposed Floating Storage and Re-gasification Unit (FSRU) terminal of Swan Energy at Jafrabad on Saurashtra coast in Gujarat.

Energy stocks finished on a strong note with Petronet LNG share price and Castrol India share price leading the gains.

In news from pharma sector, Dr.Reddy's Laboratories' consolidated net profit rose 175% to Rs 3.37 billion for the quarter ended March 2017 even as the total revenue from operations declined by 4.8% to Rs 36.11 billion.

The increase in profits came despite a 19% drop in its generics business from North America. Growth in other markets - Europe, India and emerging - notwithstanding, the total global generics revenue decreased 5% to Rs 29.13 billion.

In the year-ago period, Dr. Reddy's had posted a lower net profit of Rs 1.22 billion as the company had to write down outstanding receivables from Venezuela. It had assessed the impact at Rs 4.3 billion.

Also, the company plans to introduce 10 new products in the U.S. this year. It would maintain the capital expenditure in the Rs 10-12 billion range for another couple of years.

Dr Reddy's share price finished the day up by 3.2% on the BSE.

Meanwhile, bashed by a severe tariff war, telecom operator Idea Cellular share price plunged 6.8% in today's trade after the company reported a consolidated loss of Rs 3.25 billion in the three-month period ended March 31, 2017. The company had posted a profit of Rs 4.49 billion in the same period a year ago. Total revenues of the company declined by 13.7% at Rs 81.94 billion from Rs 95 billion it registered a year ago in the corresponding quarter.

For Idea, this is the second consecutive consolidated loss in two back-to-back quarters as the company viewed the October-April period as particularly harsh and a 'period of telecom discontinuity'. Idea also witnessed a sequential quarterly decline of 6.4 million mobile data customers on the back of 5.5 million loss in October-December 2017 versus second quarter of FY 2017.

Bharti Airtel share price too finished on a negative note (down 0.2%).

And here's a note from Profit Hunter:

The pharma sector has been the worst-performing sector. Most of the pharma stocks are trading near their 52-week lows. But today, the pharma index is up 1.3% with stocks like Dr Reddy's Laboratory (+4%) and Lupin (+2.35%) being among the top gainers in the index.

A few days back, Dr Reddy's broke below its important support level (now resistance) of 2,750 and dragged lower to hit a new 52-week low of Rs 2,522.

Today, the stock is up 3.5% as the company announced its Q4FY17 results on Friday evening after the market hours. The stock also formed a bullish divergence with the RSI indicator. The volumes are also heavy indicating buying interest.

But the stock is still trading below its important resistance level of 2,750.

So will Dr Reddy's overcome this resistance level or will it find selling at this level and post a new 52-week low? Let's wait and watch...

Dr Reddy's up 3.5% for the Day
Dr Reddy's up 3.5% for the Day 

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May 23, 2017 10:45 AM

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