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Sensex Trades in Red; Pharma Stocks Top Losers
Mon, 16 Jul 12:30 pm

After opening the day in red share markets in India  have continued the downtrend and are presently trading marginally below the dotted line. Sectoral indices are trading on a mixed note, with stocks in the pharma sector are leading the losses.

The BSE Sensex is trading down by 45 points (down 0.1%) and the NSE Nifty is trading down by 32 points (down 0.3%). Meanwhile, the BSE Mid Cap index is trading down by 1.4%, while the BSE Small Cap index is trading down by 1.6%. The rupee is trading at 68.65 to the US$.

In news from stocks in the pharma sector. Lupin share price is among the active stocks on the bourses today after the United Kingdom's (UK) drug regulator, Medicines and Healthcare products Regulatory Agency, gave its approval for the company's Goa facility.

The unit was inspected by UK MHRA in March 2018 and there were no critical or major observations cited.

At the time of writing, Lupin share price was trading down by 3.7%

Indian pharma companies catering to international markets, and especially 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.

However, note that 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 have 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 realisations.

However, the recent development of USFDA expediting the drug approval process can bring some respite for Indian pharma companies. This comes as drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year, as can be seen from the chart below:

Expediting Drug Approval Process to be a Positive for Industry


While short-term pain is expected, companies with strong R&D capabilities and compliant plants 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.

Moving on to news about the economy. According to data released by the Central Statistics Office (CSO), retail inflation as measured by the Wholesale Price Index (WPI) shot up to 5.77% in June on increasing prices of vegetables and fuel items.

Wholesale inflation rate, measured by the wholesale price index (WPI), is a marker for price movements in bulk buys for traders and broadly mirrors trends in shop-end prices.

The index portrays new series of WPI data released by the government earlier this fiscal, with 2011-12 as the base year, replacing existing the base year of 2004-05.

Food articles turned out to be major drivers as the data showed that inflation of wholesale food articles jumped to 8.1% in October, as against a 6% rise in the previous month. Fuel inflation was one of the major drivers for the uptick and was up by 16.2% as compared to a rise of 11.2% in May.

Data released by the Central Statistics Office (CSO) last week showed inflation measured by the Consumer Price Index (CPI) accelerated to a 5-month high at 5% in June from 4.87% a month ago.

Last month, the RBI's Monetary Policy Committee (MPC) upped CPI inflation estimates for 2018-19 and projected it at 4.8-4.9% in April-September, and at 4.7% in the second half of the year, including the house rent allowance (HRA) impact for central government employees.

Factoring in this uptick in inflation, the monetary policy committee raised the central bank's benchmark repo rate by 25 basis points to 6.25%.

Inflation for the month of June keeps the chances alive of a further rate hike in the month August, according to economists. The RBI governor headed Monetary Policy Committee will be meeting later this month to review interest rate regime.

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