Share Markets in India Open Lower; Dr Reddy's Bleeds on Poor Q1 Result

Fri, 28 Jul 09:30 am

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Asian indices are pressured today as the dollar firmed overnight and as investors looked ahead to more corporate earnings due during the session. The Shanghai Composite is off 0.04% while the Hang Seng is down 0.51%. The Nikkei 225 is trading lower by 0.42%. US equities traded higher on Thursday as the tech sector was lifted by strong earnings.

Back home, share markets in India have opened the day on a negative note. The BSE Sensex is trading lower by 173 points while the NSE Nifty is trading lower by 24 points. The BSE Mid Cap and BSE Small Cap index both opened the day down by 0.3%.

Barring consumer durables stocks, FMCG stocks and capital goods stocks, all sectoral indices have opened the day in red with healthcare stocks and metal stocks leading the losses. The rupee is trading at 64.12 to the US$.

Food & Tobacco stocks opened the day on a mixed note with Tata Global Beverages and Agro Tech Foods leading the losses. ITC share price gained 1.4% after the company posted a muted 7.4% increase in quarterly net profit from a year earlier as consumption stayed subdued in the run-up to the implementation of the goods and services tax (GST).

The company reported a net profit of Rs 25.6 billion in the quarter ended June compared with Rs 23.9 billion in the same period last year. Revenue rose 4.1% to Rs 138 billion.

Notably, pre-tax profit from cigarettes rose 9% year-on-year to Rs 32.7 billion; revenue from the segment grew 6.6% to Rs 87.7 billion. It is an indication that the operating profit margin expanded, largely on account of price hikes.

The high incidence of taxation on cigarettes was further compounded by the steep increase in taxes announced by the GST Council on 17 July 2017.

The intent of the GST Council behind increasing the compensation cess was to correct an apparent anomaly in cigarette taxation under the new tax regime announced earlier, on account of removal of the cascading effect of Excise Duty which existed in the pre-GST regime.

The GST became the order of the day at the start of this month. The overall impact of it is going to be a little bit more nuanced than what is being written and talked about currently in the mainstream media.

Our colleague Vivek Kaul, has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report - The Good, the Sad and the Terrible (GST).

Moving on to the news from stocks in bank sector. ICICI Bank reported 8% drop in its net profit to Rs 20.5 billion for the quarter ended June due to fall in non-interest income.

Its non-interest income was Rs 33.9 billion in Q1 compared to Rs 34.3 billion (US$531 million) in Q1-2017.

On the asset quality front, net non-performing assets came down on a sequential basis from Rs 254.5 billion to Rs 253.1 billion. Its gross NPAs have also fallen from Rs 425.5 billion to Rs 431.5 billion, sequentially.

The bank has seen a healthy recovery and upgradation during the quarter which was around Rs 25.8 billion, mainly aided by loan repayment by a large cement firm following resolution of stress.

On the business front, the bank reported a loan growth of 11% while its retail loan book, which is now 53% of the overall loan book, grew by 19%.

To know more about the company's financial performance, subscribers can access ICICI Bank latest result analysis and ICICI Bank stock analysis on our website.

ICICI Bank share price opened the day down by 2.5%.

Dr. Reddy's share price slumped over 5% after it posted 53.2% year-on-year fall in consolidated net profit at Rs 0.6 billion for the quarter ended 30 June 2017 against Rs 1.3 billion in the corresponding quarter last year.

Expediting Drug Approval Process to be a Positive for Industry

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 sell-off in the pharma space, which has led to a contraction in the price to earnings ratio (PE) of the pharma index.

The PE ratio of the Nifty Pharma Index for a five year period stands at 46 times. This ratio has contracted to 35 times currently. The headwinds being faced by this sector, have led to such lethal contraction.

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

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