Sensex Trades Flat; IT, Pharma Stocks Rally

Fri, 15 Jun 12:30 pm

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After opening the day flat share markets in India are trading on a dull note and are presently trading below the dotted line. Sectoral indices are trading on a mixed note, with stocks in the IT sector and stocks in the pharma sector witnessing maximum buying interest.

The BSE Sensex is trading down by 60 points (down 0.2%) and the NSE Nifty is trading down by 12 points (down 0.1%). Meanwhile, the BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading down by 0.2%. The rupee is trading at 68.01 to the US$.

In news from stocks in the pharma sector. Alembic Pharma share price is among top gainers today as the company received an establishment inspection report (EIR) from the US Food and Drug Administration (USFDA).

The company received the establishment inspection report (EIR) for its for its formulation facility in Panelav, Gujarat indicating a closure of inspection.

As per USFDA, after the completion of an inspection of a facility, an EIR is issued to a company detailing inspection findings.

The USFDA carried out inspection of the company's Panelav facilty from 12-20 March.

At the time of writing, Alembic Pharma share price was trading up by 3%.

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.

With an aim to lower the overall healthcare costs in the country, the US Food and Drug Administration (FDA) approved a record 763 generic drugs for the financial year ending 30th September. As per Mint Analysis, Indian pharma companies received 295 approvals accounting for 40% of the overall approvals during the year.

Generic Drug Approvals Hit the Roof

Even the total filings of abbreviated new drug applications (ANDAs) for generic drugs rose to 1,292 in FY17 from 852 in the previous year. While, faster approvals expedite the commercialisation of product pipelines of domestic pharma companies spurring growth. At the same time however, it has raised the intensity of competition resulting in pricing pressures. The price erosion has been further compounded by a consolidation among US distributors and the decline in the number of products going off-patent over the past few years.

In other words, acceleration in generic drug approvals is like a double-edged sword. The growth boost can be quickly offset by the ensuing pricing pressures. Pharma companies that invest in creating a pipeline of complex generics or building competencies in alternative dosage forms are better equipped to tackle the changing dynamics in the US generics market.

Therefore, despite a lot of pessimism surrounding pharma stocks on regulatory uncertainty, we have stocks in open positions in StockSelect and have remained bullish on pharma stocks in our long term service, ValuePro.

Moving on to news from stocks in the IT sector. Wipro share price was among most active stocks today after the IT major won multiple contracts.

Wipro announced that it signed tow multi-year business deals, one with Nokia and another with LATAM Cargo, part of Latin America's LATAM Airlines Group.

The Nokia deal would be for the design and digitalisation of Nokia's sales order operations, while the deal with LATAM was for cargo management.

However, Wipro did not provide any financial details about both the contracts.

Wipro said that it be applying robotics process automation (RPA) to enable a hyper-automated supply chain, which will be lean, agile and have the flexibility to meet the customer's current business challenges as well as keep pace with their future requirements.

During the financial year 2017-18, the BSE Sensex delivered a return of about 11%. Blame the market correction that started in February for the modest returns.

However, the BSE IT index gained over 19% during the same period. Now, that's a significant outperformance. If you were holding some solid IT stocks last year, you have most likely fared better than the Sensex.

But last year, the markets were not as optimistic on the sector as they are now.

Look at the chart...

During the first half of 2017-18, the IT sector was among the underperformers, and it was lagging way behind the Sensex.

During the first half of 2017-18, the IT sector was among the underperformers, and it was lagging way behind the Sensex. In fact, until October 2017, the index was still hovering near levels seen in April 2017.

But once the mood of the market changed, the IT index not only recovered, but went on to outperform the Sensex.

In Ankit Shah's (Research Analyst) premium newsletter Insider, the IT sector was his top pick since launch of the service in July 2017.

Here's Ankit discussing what gave him the foresight to recommend so many promising IT stocks.

• Last year when I had discussions with my fundamentals-based research team, I got a clear sense that the uncertainty and negativity surrounding the IT sector -- the H1-B visa problem, the global slowdown concerns, strengthening of the Indian rupee, high attrition rates, etc. -- was blown out of proportion. There was a good contrarian opportunity to buy 'uncertainty' when the markets were fearful of IT stocks.
  
  Like I said earlier, it is during moments of 'uncertainty' that lucrative investment opportunities are created.

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

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