Sensex Trades on a Dull Note; Pharma Stocks Witness Buying

Thu, 15 Jun 01:30 pm

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After opening the day marginally lower, share markets in India had a tepid session of trading and are currently trading in red. Sectoral indices are trading on a mixed note with stocks in the pharma sector and stocks in the realty sector trading in green, while stocks in the oil and gas sector are leading the losses.

The BSE Sensex is trading down by 70 points (down 0.2%), and the NSE Nifty is trading lower by 32 points (down 0.3%). Meanwhile, the BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading up by 0.4% The rupee is trading at 64.34 to the US$.

In news from stocks in the pharma sector. Dr Reddys share price is in focus today and surged over 2% in intraday trade.

The drug maker announced the recall of 325,000 cartons off Zenatane (isotretinoin) capsules, used for treatment of severe acne, from the US market due to failed dissolution specifications.

The drug is manufactured by pharma firm Cipla at its Pune facility for Dr Reddy's Laboratories.

The US Food and Drug Administration (USFDA) said in a report that the ongoing voluntary class II recall is nationwide in the USA and Puerto Rico. As per the US health regulator, a class II recall is initiated in a "situation in which use of, or exposure to, a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote".

The reason for the recall as stated in USFDA's Enforcement Report is failed dissolution specifications: out of specification results observed for low dissolution.

At the time of writing, Dr Reddys share price was trading up by 1.5%.

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.

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.

'Safe Haven' Pharma Sector in Decline Since 2 Years

The list of pharma sector woes is long. So, is there light at the end of the tunnel? Girish Shetty, our research analyst thinks there is.

As per him, it doesn't make sense to paint all pharma stocks with the same brush. The leaders of the industry will certainly survive this phase. There are interesting, niche pharma stocks that are worth your attention.

Facing pricing pressures in the domestic and export markets, currency fluctuations, as well as manufacturing issues related to their plant, there is a transformation happening in the overall sector as to how business is done and will be done in the future.

Moving on to news from stocks in the oil and gas sector. State-owned oil firms Indian Oil Corp IOC, Bharat Petroleum Corp Ltd BPCL and Hindustan Petroleum Corp Ltd HPCL have signed an agreement to jointly set up the world's largest refinery and petrochemical complex in Maharashtra at an estimated cost of US$ 40 billion.

IOC will be the lead partner with 50% stake while HPCL and BPCL will take 25% stake each.

IOC's management said that the refinery will have an accompanying mega petrochemical plant, and would include an aromatic complex, naphtha cracker and polymer complex.

The refinery will produce petrol, diesel, LPG, ATF and feedstock for making petrochemical that are basic building blocks in plastic, chemical and textile industries.

India has a refining capacity of 232 million tonnes, which exceeded the demand of 194.2 million tonnes in 2016-17 fiscal.

The entire refinery will include three crude units of 20 million tonnes each and will take five-six years for completion after land acquisition and all clearances

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.

At the time of writing, IOC share price, HPCL share price and BPCL share price, were trading lower by 3%, 2.8% and 3.3% respectively.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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