Sensex Trades in Red; Bank Stocks Lead Losses

Tue, 31 Jul 12:30 pm

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After opening the day in red, share markets in India have continued the downtrend and are presently trading below the dotted line. Sectoral indices are trading mixed with stocks in the PSU sector and stocks in the banking sector trading in red. While stocks in the realty sector are trading in green.

The BSE Sensex is down by 103 points (down 0.3%) and the NSE Nifty is trading down by 17 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading up by 0.2%, while the BSE Small Cap index is trading up by 0.1%. The rupee is trading at 68.58 to the US$.

In news from stocks in the aviation sector. Interglobe Aviation (IndiGo) share price is in focus today after the company declared poor results for the June 2018 quarter.

IndiGo's net profit for the quarter in focus, fell over 97% year on year (yoy) to Rs 278 million from Rs 8.1 billion in the same period a year ago.

The profitability was majorly impacted by the adverse impact of foreign exchange, high fuel prices and a competitive fare environment.

At the time of writing IndiGo share price was trading down by 8.3%.

Indian Aviation Spreading its Wings

Air travel has recorded double-digit growth for 45 consecutive months, thanks to low fares, the addition of new flights/destinations, and overall growth in the economy.

What's foreseeable for India's aviation traffic in 2018 is some pressure on the back of the consistent rise in crude oil prices. Earlier this month, Brent crude oil briefly breached US$80 per barrel and touched its highest level since December 2014. Crude prices have been driven up by production curbs in OPEC nations and Russia, as well as by robust demand on the back of healthy global economic growth.

Oil prices are closely monitored by the Indian air carriers, as aviation turbine fuel is their single largest input cost. A sharp rise in the cost of fuel puts pressure on margins, and consequently an increase in air fares.

Although air travel is becoming the new normal, investors need to understand the industry dynamics before buying up aviation stocks.

Moving on to news from stocks in the pharma sector. Aurobindo Pharma share price is in focus today after the US Food and Drug Administration (USFDA) granted approval to the company to manufacture and market Bivalirudin injection in the US market.

Bivalirudin injection is a generic equivalent of the Angiomax injection and is used as an anti-coagulant in patients with unstable angina undergoing percutaneous transluminal coronary angioplasty among others.

According to market reports, the market size for Bivalirudin injection in the US was US$ 101 million for the year ending May 2018.

At the time of writing, Aurobindo Pharma share price was trading down by 0.7%.

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.

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.

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

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