Sensex Trades Strong ahead of RBI Meet Outcome; Consumer Durables' Stocks Rally

Wed, 6 Jun 12:30 pm

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Stock markets in India are trading higher ahead of RBI monetary policy decision, due later in the day today. All sectoral indices are trading in green with stocks in the consumer durables sector and automobiles sector witnessing maximum buying interest.

The BSE Sensex is trading up by 201 points and the NSE Nifty is trading up by 62 points. Meanwhile, the BSE Mid Cap index is trading up by 0.8% while, the BSE Small Cap index is trading up by 0.9%. The rupee is trading at 67.63 to the US$.

In the news from the bank sector. In the latest developments, IndusInd Bank (IBL) and micro-lender Bharat Financial Inclusion (BFIL) said today that they have got approval from stock exchanges for their proposed merger, paving the way to file the draft scheme of amalgamation.

BFIL being the second largest micro-lender in the country, the mid-sized private sector lender is expected to gain access to the rural hinterlands of the country.

Reportedly, the merger, which will add 6.8 million customers to IndusInd Bank's over 10 million, will also help reduce cost of lending for micro borrowers as cheaper deposits can be used to fund their credit needs.

Further, the biggest gain for bank is the rural network. It will also help reduce cost of funds by 3-4%, the bank stated.

IndusInd Bank had received no-objection from the Reserve Bank on 13 March 2018 for this merger plan. Before this, the Competition Commission of India had given its approval for this proposed merger on 19 December 2017.

The bank will acquire BFIL through an all-stock transaction of BFIL through a composite scheme of arrangement.

As on 31 March 2018, IndusInd Bank has 1,400 branches, and 2,203 ATMs spread across 713 geographical locations of the country. Catering mainly to the economically weaker sections of the society, BFIL has presence across 16 states covering one lakh villages.

To know more about the company, you can access to IndusInd Bank's latest result analysis and IndusInd Bank stock analysis on our website.

IndusInd Bank share price was trading up by 0.1% at the time of writing.

Moving on to the news from the pharma sector. As per an article in a leading financial daily, USFDA inspected manufacturing facility of Cadila Healthcare' wholly owned subsidiary, Alidac Pharma.

The facility is located at SEZ, Ahmedabad and the inspection took place from 28 May to 5 June 2018.

Reportedly, at the end of the inspection, no form 483 observation was issued. This site manufactures oncology injectables for the regulated markets.

Company is expecting a strong US revenue growth due to the approx. 50 product launches in the US over FY19E. This includes some limited competition product launches as well. To launch these many products, company requires a clean regulatory track record. Company has a total 144 pending ANDAs by March 2018 and it expects a strong launch momentum with de-bottlenecked facilities.

To know more about the company, you can access to Cadila Healthcare's latest result analysis and Cadila Healthcare stock analysis on our website.

Cadila Healthcare price was trading up by 1.5% at the time of writing.

To get more updates on share market, click here.

One shall note that, the BSE healthcare index was the worst performing sector in 2017. In fact, the sector has underperformed over the past three years.

The valuations of the top five companies by market capitalization on BSE healthcare tell a different story though. Average Price to Earnings Ratio of the top five companies stands at 36. Considering the headwinds these companies are facing, it certainly seems rich.

Valuations of Top Pharma Companies Still High

An improved earnings performance will certainly get these valuations to reasonable levels, provided the share price remains the same. But, the headwinds for the sector still exists.

The top generic companies are trying to move toward low competition drugs, which can be seen by their R&D expenditure towards complex generics. This though will take time and substantial expenditure. It might also mean muted earnings in the next couple of years, before the drugs are distributed into the market.

The uncertainties make it important to be stock specific in the sector. Focus on value and the underlying fundamentals of the business.

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