Sensex Ends Day in Red; RCom Surges 57%

Thu, 17 May Closing

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After opening the day in green share markets in India  witnessed choppy trading activity and ended the day well below the dotted line. Sectoral indices ended the day mixed, with stocks in the realty sector and stocks in the consumer durables sector leading the gains, while stocks in the FMCG sector lost the most.

At the closing bell, the BSE Sensex stood lower by 239 points (down 0.7%) and the NSE Nifty closed down by 58 points (down 0.6%). The BSE Mid Cap index ended the day up 0.7%, while the BSE Small Cap index ended the day up by 0.4%.

Asian stock markets finished mixed. As of the most recent closing prices, the Hang Seng was down by 0.5% and the Shanghai Composite was down by 0.5%. The Nikkei 225 was up by 0.4%. Meanwhile, European markets, were trading in green. The FTSE 100 was up by 0.1%, The DAX, was up by 0.4% while the CAC 40 was up by 0.5%.

The rupee was trading at Rs 67.72 against the US$ in the afternoon session. Oil prices were trading at US$ 72.07 at the time of writing.

In news from stocks in the pharma sector. Divi's Lab share price is in focus today after the United States Food & Drug Administration (USFDA) completed its inspection of the company's Choutuppal, Telangana facility with no integrity or repeat observations for the unit.

The company's unit-I at Choutuppal, Telangana had an inspection by USFDA from May 14-16.

This was a general cGMP inspection by the USFDA and the US regulator completed the inspections with no observations and cleared the plant.

Divi's lab share price ended the day flat, after surging over 3% in early trade.

Domestic Pharma Market in a Slow Lane

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.

Even as pharma companies reel under the regulatory crackdown in the largest export market in the US, there has been no succour from the domestic markets. The growth in the Indian pharmaceutical market almost halved to 5.5% in 2017. Only 3,932 brands were launched in 2017. This is the lowest since 2013.

The leading therapy segments in terms of brand launches were dermatology, anti-infectives, cardiology, and gastroenterology. Anti-diabetics have also been growing in double-digits for the past five years. However, with the government bringing a number of essential drugs under price control, prescription drugs are witnessing sluggish growth. Therefore, pharma companies are now focusing on the over-the-counter (OTC) medicines.

As per the Nicholas Hall 2017 report, the OTC market is expected to grow at a compounded annual growth rate of 9% and reach US$ 6.5 billion by 2026. So, medication such as dermatology, vitamins, and pain & analgesics have gained centre stage, where most brand launches are taking place.

Recently, Lupin forayed into the OTC segment after it re-launched Softovac, its more than three-decades-old brand. Torrent Pharma has acquired Unichem Lab's domestic business which has popular OTC brands such as Unienzyme. The consumer products arm of Piramal Enterprises acquired four OTC brands from Pfizer last year; and recently, it acquired a gastro-intestinal brand, Digeplex, from Shreya Lifesciences.

Thus, while pricing controls keep the operating environment tough in the domestic market, pharma companies with strong brands in the OTC category are better placed to ride the slowdown.

Moving on to news from stocks in the telecom sector. Debt ridden Reliance Communications (RCom) share price surged over 65% in today's trade after it was reported that the company has offered opt for an out of court settlement its legal battle with Ericsson.

Earlier the National Company Law Tribunal (NCLT) had admitted pleas filed by Ericsson for initiating insolvency proceedings against RCom.

This had stalled RCom's plan to sell its assets to Reliance Jio Infocomm Ltd. RCom was seeking to reduce its US$7 billion debt with this deal.

RCom shut wireless operations in late 2017, after a merger attempt with Aircel fell through. It then signed a deal in December 2017, in which Reliance Jio agreed to buy a majority of the wireless assets of RCom for an undisclosed amount. Both companies signed agreements for sale of wireless spectrum, tower, optical fibre network and media convergence node assets.

Notably, Ericsson has sought Rs 11.5 billion from RCom and two of its arms-Reliance Telecom Ltd and Reliance Infratel Ltd-after having signed a seven-year deal in 2014 to operate and manage RCom's nationwide network.

RCom share price ended the day up by 57%.

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