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Sensex Opens Lower; IT Stocks Lose
Thu, 14 Jun 09:30 am | Rini Mehta, TM Team

Asian share markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.1% while the Hang Seng is down 0.6%. The Nikkei 225 is trading down by 0.4%. US stocks ended a choppy session lower on Wednesday after the US Federal Reserve raised interest rates and projected a slightly faster pace of rate hikes this year.

Back home, India share markets opened the day on a negative note. The BSE Sensex is trading down by 113 points while the NSE Nifty is trading down by 34 points. The BSE Mid Cap index and BSE Small Cap index opened down by 0.2% & 0.1% respectively.

Barring healthcare stocks & consumer durables' stocks, all sectoral indices have opened the day in red with information technology stocks and energy stocks witnessing maximum selling pressure. The rupee is trading at 67.63 to the US$.

Meanwhile, the 10-year bond yield stood at 7.93% from its Tuesday's close of 7.97%. Bond yields and prices move in opposite directions.

The earnings yield of the market vis-a-vis risk-free 10-year government bond yield is a very important indicator for equity markets.

The earnings yield is calculated as the net profit for the last 12-month period, divided by market capitalisation. In other words, it is the inverse of the PE Ratio.

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This ratio can be used as a tool to identify how cheap or expensive the stock market is relative to the debt market, other any other possible investments.

The chart below illustrates the same.

The Gap Widens Between Bonds and Stocks

Lately, the divergence between bond yields and earnings yield has increased. This means stocks have become expensive compared to bonds.

Historically, there is a negative correlation between stock prices and the spread of bond yields over earnings yields.

The bond yields are now higher by 364 basis points (bps), compared to the average earnings yield of the BSE Sensex.

With this, the equity market might see more selling in the coming weeks, as there is still a large gap between the yield on the 10-year government bond and corporate earnings yield.

Bank stocks opened the day on a mixed note with ITI Ltd & AGC Network leading the gainers. As per an article in a leading financial daily, ICICI Bank will sell up to 2% stake in its life insurance subsidiary ICICI Prudential Life Insurance Ltd.

Reportedly, the sale, likely in one or more tranches, will help the bank raise Rs 11.8 billion.

The board of directors of the bank approved the sale of up to 28,711,100 shares, representing up to 2% of the issued and the paid-up equity share capital of ICICI Prudential Life Insurance Co. Ltd.

The bank said the stake sale can happen through any manner, including offer for sale through the stock exchange mechanism.

ICICI Prudential Life Insurance is a joint venture of ICICI Bank and US-based Prudential Corp. Holdings Ltd.

While ICICI Bank holds 54.9% stake in the insurance company, Prudential holds 25.8%. ICICI Prudential became a publicly listed firm in September 2016, when it was valued at Rs 479.6 billion.

As per the reports, the share sale will enable ICICI Bank to boost its provision coverage ratio (PCR), which is the lowest among large banks. PCR is the proportion of funds that a bank sets aside against bad loans.

ICICI Bank's PCR excluding technical write-offs stands at 48.4%, compared to Axis Bank's 52.5% and SBI's 50.4%. Among the large banks, Bank of Baroda has the highest PCR excluding write-offs at 59%.

ICICI Bank share price opened the day down by 0.5%.

Moving on to the news from the pharma sector. As per an article in a leading financial daily, Lupin has announced that it has launched Tobramycin Inhalation Solution USP, in the US market.

Reportedly, Lupin had already received USFDA approval for Tobramycin Inhalation from the USFDA.

Lupins Tobramycin Inhalation Solution USP is a generic equivalent of Novartis Pharmaceuticals Corporation's Tobi, which is indicated for the management of cystic fibrosis patients with Pseudomonas aeruginosa.

As per the IQVIA data, Tobramycin Inhalation Solution USP, 300 mg/5 ml had annual sales of approximately US$99mn in the US for the year ended April 2018.

Apart from the innovator Novartis and latest entrant Lupin, there are seven players in this drug. This could become approx. US$3mn drug for Lupin assuming 10% market share and 30% price erosion, the reports noted.

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

Lupin share price opened the day up by 1.3%.

To get more updates on share market, click here.

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