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Sensex Extends Losses; Pharma Stocks Top Losers
Mon, 21 May Closing

After opening the day in red share markets in India witnessed negative trading activity throughout the day, and ended well below the dotted line. Sectoral indices ended the day mixed, with stocks in the realty sector and stocks in the pharma sector leading the losses, while stocks in the PSU sector gained the most.

At the closing bell, the BSE Sensex stood lower by 232 points (down 0.7%) and the NSE Nifty closed down by 80 points (down 0.8%). The BSE Mid Cap index ended the day down 1.6%, while the BSE Small Cap index ended the day down by 2.2%.

Asian stock markets finished in green. As of the most recent closing prices, the Hang Seng was down by 0.6% and the Shanghai Composite was up by 0.7%. The Nikkei 225 was up by 0.4%. Meanwhile, European markets, were trading mixed. The FTSE 100 was up by 0.8%, The DAX, was down by 0.2% while the CAC 40 was up by 0.7%.

The rupee was trading at Rs 68.09 against the US$ in the afternoon session. Oil prices were trading at US$ 78.75 at the time of writing.

In the news from commodity markets. Crude oil prices are in focus today as they are trading newar four-year highs. Last Thursday, Brent crude oil prices shot above US$ 80 a barrel. This is the highest level since 2014. In the past one year alone, oil prices have surged more than 50%.

Notably, this has influenced domestic fuel prices as well. With petrol and diesel prices across the country hitting all-time high levels.

Rising crude not only affects fuel prices in India but could threaten India's economic recovery.

As we wrote in a recent edition of The 5 Minute WrapUp...

  • Fiscal revenues are at risk. Particularly if the government is forced to consider a cut in fuel excise duties due to a rally in oil prices. In recent times, a sharp jump in excise collections has helped indirect tax collections. Any risk to revenues and subsequent threat to the fiscal deficit target at 3.2% of GDP would require tighter spending cuts. HYPERLINK "https://www.equitymaster.com/5MinWrapUp/detail.asp?date=01/04/2017&story=2&title=Will-the-Rate-Cut-Usher-in-Acche-Din-for-India&utm_source=5MIN&utm_medium=website&utm_campaign=e-letter&utm_content=5wrap" \t "_blank" central bank's scope for further rate cuts.

    Lastly, low crude prices were a positive growth impetus through higher discretionary incomes for households and lower input costs for manufacturers and farmers. Part of this benefit is likely to be eroded as retail fuel costs rise. As for corporations, expansion in gross margins caused by falling commodity prices is also likely to wane, pressurising profitability.

You can read the entire article here.

Steadily Rising Crude Oil Prices


Richa Agarwal, editor of Hidden Treasure, tracks the oil and gas sector very closely. This is what she had to say about rising crude prices:

She believes it is a bearish sign for stock markets globally. At the same time, any market correction, will throw up interesting buying opportunities in small-cap stocks.

This is what she said...

  • After hitting a low of US$ 30 per barrel in January 2016, prices have more than doubled to US$ 68 in April 2018.

    The recent news of Saudi Arabia wanting crude oil prices to touch US$ 100 per barrel doesn't help. The 2008 recession was preceded by crude oil touching US$ 150 per barrel. Any movement upwards can result in a possible downturn for the global market.

    While the Hidden Treasure team looks for long-term wealth creators, such macro situations can help to recommend such stocks at a bargain. The ones who keeps calm, when everyone else is losing their heads, will gain the most when the tide turns.

Note that crude oil prices have been witnessing a rising trend of late.

However, this is not good news from India's perspective.

Back home inflation seems to be on a downward trajectory, however rising crude prices could be a threat.

As per the data released by the government, retail inflation cooled to a five-month low of 4.28% in March following a decline in food prices including vegetables. The inflation based on Consumer Price Index (CPI) was 4.44% in February.

The inflation remained above the Reserve Bank of India's (RBI) medium-term target, supporting views that monetary policy is likely to remain unchanged at the next review in early June.

The RBI, which has kept rates steady since a cut of 25 basis points in August last year, is widely expected to maintain rates at their current level in the next review due on 6 June.

How this pans out remains to be seen. We will keep you updated on all the developments from this space.

Moving on to news from stocks in the pharma sector. Glenmark Pharma share price was in focus today after it was reported that the company received a ANDA (abbreviated new drug application) approval from the United States Food & Drug Administration (USFDA) for Colesevelam Hydrochloride tablets.

The drug is a generic version of Daiichi Sankyo's Welchol tablets, and is indicated for treatment of cholesterol.

According to IQVIA sales data, the  Welchol tablets had annual sales of around US$520 million in the US.

Notably, Glenmark's current portfolio consists of 135 products authorised for distribution in the US market and 62 abbreviated new drug applications (ANDAs) pending approval with the USFDA.

Glenmark Pharma share price ended the day down by 0.5%.

Indian pharma companies catering to the US markets are breathing a sigh of relief. After being adversely affected by import bans and the suspension of new drug approvals from manufacturing facilities in the past three years, there has been a sharp pick-up in new drug approvals in FY17.

However, note that USFDA alerts on Indian pharma companies have increased over the past few years. Regulators used to visit the plants every two years. Now they come every eight months. Increasing inspections have led to a total of 41 import alerts in the past eight years - 33 of them (80%) in just the last four years (2013-16). This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realisations.

However, the recent development of USFDA expediting the drug approval process can bring some respite for Indian pharma companies. This comes as drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year.

While short-term pain is expected, companies with strong R&D capabilities and compliant plants will do well over the long term. The uncertainties make it important to be stock specific in the sector. It is important to look for companies that have the competence and staying power to overcome the challenges.

Pharma stocks ended the day lower by 2.6%.

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