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Sensex Pares Early Gains; IT Stocks Witness Selling
Wed, 7 Jun 01:30 pm

After opening the day on a positive note, share markets in India pared early gains in anticipation of the outcome of the RBI policy meet, and are trading flat. Sectoral indices are trading on a mixed note with stocks in the pharma sector and stocks in the FMCG sector trading in green, while stocks in the IT sector are leading the losses.

The BSE Sensex is trading up by 25 points (up 0.1%), and the NSE Nifty is trading up by 9 points (up 0.1%). Meanwhile, the BSE Mid Cap index is trading up by 0.3%, while the BSE Small Cap index is trading up by 0.6% The rupee is trading at 64.43 to the US$.

In news from stocks in the pharma sector. Cadila Healthcare share price hit a record high, and was among the top gainers on the bourses, up by 9.9% intraday. Notably, the stock has been consistently breaching its all-time highs since the last week.

With this, Cadila Healthcare Ltd has become India's second-most valuable pharmaceutical company in terms of market capitalization at Rs 547.9 billion, beating drug makers like Lupin Ltd, Dr Reddy's Laboratories Ltd and Cipla Ltd that have much higher revenues. Sun Pharmaceuticals Industries continues to be the most valued pharma company in India with a market cap of Rs 1.22 trillion.

The up move was triggered as Cadila Healthcare announced that it had received final approval form the US Food and Drug Administration (USFDA) approval for Mesalamine delayed-release tablets.

Lialda (mesalamine) is indicated for the treatment of mild to moderate ulcerative colitis, a chronic condition that causes inflammation in the digestive tract. It will be produced at the group's formulations manufacturing plant at Moraiya, Ahmedabad.

This is a significant development for the company as it is the first drug approval from the company's Moraiya plant since successfully completing the USFDA audit with zero observations, in February this year.

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As per IMS MAT April 2017 data, the estimated brand sales for Mesalamine tablets stood at US$ 1.1 billion.

Last week, the company received final approval from USFDA to market oral drug Felbamate tablets, which is used to treat epilepsy. The drugmaker has over 116 approvals and 300 ANDAs since the commencement of the filing process in FY04.

At the time of writing, Cadila Healthcare share price was trading up by 8%.

The Indian pharmaceutical industry has come under a lot of regulatory pressure in the past few years.

The sector has faced great volatility over the years.

Volatility in the Pharma Sector

We had written about the current predicament of Indian pharma companies in one of the premium editions of the 5 Minute WrapUp:

  • Over the past few years, risk in the US markets has increased. The US Food and Drug Administration has become stricter on products entering US borders. Surprise inspections have increased and companies are being issued warning letters. This has impacted the business and earnings of Indian pharma players, causing major volatility for the sector.

However, such gloom and doom scenarios are bound to create opportunities in select safe stocks. The prudent thing to do is to remain focused and patient for both opportunities to come as well as to play out completely.

Moving on to news from stocks in the oil and gas sector. According to an article in The Economic Times, ONGC (Oil and Natural Gas Corp) may buy out government's entire holding in HPCL (Hindustan Petroleum Corp Ltd ).

According to the article, the Department of Investment and Public Asset Management (DIPAM) will shortly seek cabinet approval for ONGC to buy the government's entire stake in refiner in line with the oil ministry's proposal of creating a domestic oil giant.

The move is based on the recommendations of a consultancy firm, which the oil ministry had hired to suggest ways of restructuring state firms.

The government owns 51.11% of HPCL and 68.07% of ONGC. At current prices, a sale of the entire HPCL stake could fetch the government about Rs 280 billion.

The combined market value of ONGC and HPCL would stand at US$ 42 billion which is comparable with Rosneft's US$ 52 billion. However, it would be much smaller when compared to global giants such as ExxonMobil (US$ 340 billion), Shell (US$ 222 billion), Total (US$ 128 billion) or BP (US$ 120 billion).

The acquisition of HPCL would make ONGC, an exploration and development company that produces 60% of country's crude oil, a much more integrated player with a large presence in the downstream segment.

At the time of writing, ONGC share price was trading up by 1%, and HPCL share price was trading down by 0.9%.

The government is mulling over consolidating all the major oil players into an integrated public sector 'oil major'. Our energy sector analyst Richa Agarwal, had written about her view of this development in one of the recent editions of the 5 Minute WrapUp Premium. Give it a read to form a better understanding of the development.

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