Sensex, Nifty Close at Record Highs; Banking Stocks Witness Buying

Wed, 8 Aug Closing | Monish Vora, TM Team

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Indian share markets continued their momentum during closing hours of trade and ended the day on a positive note. Gains were largely seen in the energy sector, telecom sector and banking sector.

Both, the Senses and Nifty, ended their day at record closing highs. At the closing bell, the BSE Sensex stood higher by 222 points (up 0.6%) and the NSE Nifty closed higher by 61 points (up 0.5%). The BSE Mid Cap index ended the day up by 0.2%, while the BSE Small Cap index ended the day flat.

Asian stock markets finished on a mixed note as of the most recent closing prices. The Hang Seng stood up by 0.39% and the Nikkei was trading down by 0.08%. The Shanghai Composite stood lower by 1.25%.

European markets were trading on a positive note. The FTSE 100 was up by 0.84%. The DAX, was up by 0.32% while the CAC 40 was up by 0.10%.

The rupee was trading at 68.62 to the US$ at the time of writing.

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In the news from pharmaceuticals sector, Lupin share price was in focus today as the company reported a 44% year-on-year (YoY) decline in net profit at Rs 2,028 million for the quarter ended June.

Total income during the quarter grew 3.6% YoY to Rs 40 billion.

The subdued performance was primarily seen on the account of lower sales in the US and Japan. Sales in North America, the company's largest market, fell 26%.

Also, a rise in tax rate to 47% from 21% in the corresponding quarter also hit earnings.

At the closing bell, Lupin share price stood down by 4.5% on the BSE.

Speaking of pharma sector, note that the BSE Healthcare Index has been on a roller coaster ride in the past few years. The period from 2012 to 2015 saw the index go up more than three times.

And since then it has been a painful ride downwards, as can be seen from the chart below:

The Roller Coaster Ride of the BSE Healthcare Index

As we wrote in one of our editions of The 5 Minute WrapUp...

• Pre-2015, pharma companies enjoyed a fairytale ride in the US market. Low labor costs, good chemistry skills, along with efficiency, ensured Indian companies could copy innovator drugs to make generic drugs at a fast pace.
  
  The generic business had lucrative margins for all major pharma players. But the party did not last long. In the quest to supply drugs quickly, they compromised on quality at their manufacturing facilities.
  
  No wonder, the US regulatory authority (USFDA) took strict action. Sun Pharma received a warning letter for its Halol manufacturing facility in 2015. It was like a bolt out of the blue. Since then, the downward spiral began and has continued till date.

We believe that 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 as well as in the overall industry.

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.

In news from the , Mphasis share price was also in focus today. Shares of the company witnessed selling pressure as the company's board approved a proposal to buy back shares worth of up to Rs 9.8 billion.

It also said that promoters of the company have intentions to participate in the buyback and the buyback of shares will be done at a maximum price of Rs 1,350 per share.

Mphasis share price closed the day down by 3.5% on the BSE.

Speaking of buybacks, the number of buyback offers in 2017-18 were at an all-time high. Never, in the last two decades, Indian markets saw fifty-nine companies announcing buyback plans.

As per Rahul Shah, co-head of Research, investors should not assume buybacks are always good. Here's an excerpt of what he wrote in one of the editions of The 5 Minute Wrapup:

• The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.

At Equitymaster, we believe, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

It's a matter of time before you get to use the cash for buying stocks, you've always wanted to, at attractive bargains.

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