Sensex Finishes Firm; Bank Stocks Rally

Thu, 6 Jul Closing

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Indian share markets trimmed some of their early gains in the afternoon session but still finished the trading session on a firm note. At the closing bell, the BSE Sensex stood higher by 124 points, while the NSE Nifty finished up by 37 points. Meanwhile, the S&P BSE Mid Cap & the S&P BSE Small Cap finished up by 0.3% respectively. Gains were largely seen in realty stocks, PSU stocks, auto stocks and FMCG stocks.

PSU bank stocks rallied in today's trade with Indian Bank share price and Central Bank share price leading the gains. SBI share price surged 2.1% in today's trade.

Asian stock markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.17%, while the Nikkei 225 & the Hang Seng fell 0.44% and 0.22% respectively. European markets are lower today with shares in France off the most. The CAC 40 is down 0.87% while Germany's DAX is off 0.66% and London's FTSE 100 is lower by 0.56%.

The rupee was trading at Rs 64.77 against the US$ in the afternoon session. Oil prices were trading at US$ 45.77 at the time of writing.

In news from economic sector, International Monetary Fund (IMF) has said that India's economic growth outlook has improved as the impact of government's demonetisation drive to curb black money seems to be fading and recent key structural reforms are paying off. Though, it also noted that concerns are growing on corporate debt and banking system vulnerabilities.

IMF has stated that there is 'cautious optimism' about the global economy but policy efforts are still required to reinforce the recovery. It pointed out that the global recovery continues, even as the composition of growth is shifting among the large economies. It also expects that global growth to be around 3.5% this year and next.

Even though global growth momentum remains on track, the IMF has said that some of the forces driving the recovery are adding to already high vulnerabilities and external imbalances. At the same time, it also noted that, weak productivity growth and a lack of inclusiveness limit the growth outlook going forward.

Noting that there is scope for improving productivity and widening economic opportunities for all, the IMF said that in many emerging and advanced economies, higher investment in education, including through better use of public funds, would support long term growth. It also explained that such investments would also help in opening up opportunities and enabling both social mobility and adjustment to structural economic shifts, including those arising from technology and trade.

Moving on to news from telecom stocks. As per an article in The Economic Times, Bharti Airtel may revive a plan to sell a controlling stake in tower arm Bharti Infratel in an effort to pare over US$14 billion of debt and release funds for network expansion.

The possible change of plan comes at a time when there has been a 26% surge in Infratel's stock price over the past three months.

Recently, Livemint reported that Bharti Airtel Ltd sold a 10.3% stake in its tower unit to a consortium of investors including KKR & CPPIB to raise Rs 61.93 billion, funds that India's largest telecom operator plans to use to pare debt and counter intensifying competition.

Airtel had talked about selling a controlling stake in Infratel in October but shelved the plan in March. Instead, it transferred a 21.63% holding to a wholly owned arm, Nettle Infrastructure Investments, as share price declined amid industry consolidation that threatened tenancies and revenue.

Airtel plans capital expenditure of US$2.5 billion in the current financial year in India, where it is expanding 4G network and deepening 3G network. Airtel spent about US$2.3 billion in the previous year.

Bharti Airtel share price finished the trading day up by 1.4%

In news from pharma sector, Jubilant Life sciences has received final approval from the US health regulator for Bupropion Hydrochloride extended- release tablets, used for the treatment of major depressive disorder and prevention of seasonal affective disorder.

This is the fourth approval received by the company from the USFDA during the current financial year. As on March 31, 2017, Jubilant Life Sciences had a total of 81 ANDAs for oral solids filed in the US, of which 51 have been approved.

Jubilant Life Sciences share price finished the trading day up by 0.2% on the BSE.

Lupin also launched generic version of Moxifloxacin Hydrochloride Ophthalmic solution used for treating bacterial conjunctivitis in the US market.

The launch follows receipt of approval from the US Food and Drug Administration (USFDA) earlier for Moxifloxacin Hydrochloride Ophthalmic solution 0.5%. The medicine is the generic equivalent of Novartis Pharma Corp's Vigamox Ophthalmic solution.

Lupin share price finished the day down by 0.3%

Speaking of valuations, the BSE Healthcare Index is down 16.5% in two years. This is a mighty fall compared to the benchmark index, which is up 11% during the same period. A downgrade in the earnings estimates has led to a selloff in the pharma space, which has led to a contraction in the price to earnings ratio (PE) of the pharma index.

USFDA alerts on Indian pharma companies have increased over the past few years. Regulators used to visit the plants every two years. Now they come every eight months. Increasing inspections has led to a total of 41 import alerts in the past eight years - 33 of them (80%) in just the last four years (2013-16). This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realizations.

Expediting Drug Approval Process to be a Positive for Industry

In this dull scenario, there appears to be some respite as the USFDA has expedited the drug approval process. Drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year.

And here's a note from Profit Hunter:

Public sector banks (PSB) bottomed out in February 2016 with the broader market. The PSU Bank Index then rallied strongly to double from its bottom. But in the past two months, the index is 14% off its high.

Today, all PSU banks stocks rallied. But Bank of Baroda (BOB) rallied the least.

The stock has been trading in a rising channel since May 2016. Recently, it found resistance at the channel's resistance line at the 200 level and collapsed 24% to break below the channel's support line. This indicates weakness in the price action. Last week, the stock hit a low of Rs 152 before bouncing up a bit.

Today, it's trading near the channel's broken support line. This support has now turned into resistance. If the stock finds resistance here, it will mark the end of the uptrend. On the flipside, if it manages to get back into the channel, the bulls could be back in action.

End of BOB's Uptrend?

 

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