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Pharmaceutical Stocks on the Rise; Stocks to Watch Out for Today
Tue, 11 Jul Pre-Open

The S&P BSE Sensex ended on a strong note in yesterday's trade. Major sectoral indices ended the day on a positive note with stocks from information technology sector rallying the most. Tata Consultancy Service was up by 4.7% ahead of its results on 13 July.

Moving to the Top Cues in Action Today

Earnings season has commenced as companies have started reporting their results for the quarter ending June 2017.

The companies to report their results today includes the likes of IndusInd Bank, CCL Products (India) Ltd and Amtek Auto.

Ahead of its result, IndusInd Bank is trading at its all-time high of Rs 1559. Loan growth coupled with slippages on the bad loans front will be the key things to watch out for. We will keep you updated on this front in the upcoming market commentaries.

Talking about earnings, an analyst estimate suggests that there could possibly be a slowdown in earnings growth on account of implementation of goods and service tax (GST). Implementation of GST from 1 July 2017 has led to supply chain disruptions in various sectors. This could have a possible impact on the earnings growth.

We believe, such disruptions would prevail across sectors in the short run. However, in the long run GST will be a long term positive for the economy. Rahul Shah-Managing Editor of Microcap Millionaires, too is of the view that GST will be a long term positive for the economy. In one of his recent articles he stated how the organized sector is set to benefit in a huge way from this reform.

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News from the Pharma Sector...

The S&P BSE Healthcare index inched upwards by 1.2% in yesterday's trade. The pharma sector was in the buzz on the back of heavy buying in certain stocks like Sun Pharmaceutical Industries, Divis Laboratories and Lupin Ltd.

Divis Laboratories surged by 7.9% in yesterday's trade as the US drug regulator lifted its import alert issued under clause 99-32 on the company's Unit-II at Vishakhapatnam. However, the import alert issued under clause 66-40 persists. The removal of import alert under 66-40 would enable the company to export its products to the US. Thus, the removal of import alert under the clause 66-40 will be the key thing to watch out for going forward.

Overall, 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. The headwinds being faced by this sector, have led to such lethal contraction.

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.

While short-term pain is expected, companies with strong R&D capabilities and compliant plants (subscription required) will do well over the long term. The uncertainties make it important to be stock specific in the sector. It is important to look for companies that have the competence and staying power to overcome the challenges facing the sector.

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

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