Sensex Trades in Red; Sun Pharma Hits Four-Year Low

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After opening the day marginally lower, share markets in India have extended their losses and are currently trading in red. Sectoral indices are trading on a mixed note with stocks in the realty sector and metals sector witnessing maximum buying interest. Stocks in the FMCG sector and stocks in the pharma sector are trading in the red.

The BSE Sensex is trading down by 125 points (down 0.4%), and the NSE Nifty is trading lower bys 30 points (down 0.3%). Meanwhile, the BSE Mid Cap index is trading down by 0.6%, while the BSE Small Cap index is trading down by 0.4% The rupee is trading at 63.76 to the US$.

In news from stocks in the pharma sector... Sun Pharma share price slumped to a four-year low after the company's subsidiary Taro Pharmaceutical Industries (Taro) reported dismal results for the quarter.

Taro's net income halved to US$ 54.5 million in Q1FY18 as compared to an income of US$ 109.9 million in the same period last year.

Net sales during the quarter under review also declined 31% to $161.3 million, due to continuing increased competition and the challenging pricing environment; despite an overall increase in volumes.

Taro's sales were hurt due to a difficult pricing environment in the generics business and increased competition, especially in the US. New entrants to the market and the USFDA's higher approval rate for new drug applications also affected the company's sales.

Sun Pharma is a majority shareholder in Taro Pharma, and holds about 73% stake in the company.

At the time of writing, Sun Pharma share price was down by 3%. In the past one month, the stock has declined over 15% on the back of regulatory woes.

The Indian pharmaceutical industry has come under a lot of regulatory pressure in the past few years.

The sector has faced great volatility over the years.

We had written about the current predicament of Indian pharma companies in one of the premium editions of the 5 Minute WrapUp:

• Over the past few years, risk in the US markets has increased. The US Food and Drug Administration has become stricter on products entering US borders. Surprise inspections have increased and companies are being issued warning letters. This has impacted the business and earnings of Indian pharma players, causing major volatility for the sector.

The list of pharma sector woes is long. So, is there light at the end of the tunnel? Girish Shetty, our research analyst thinks there is.

Is the Worst Over for all the Pharma Stocks?

As per him, it doesn't make sense to paint all pharma stocks with the same brush. The leaders of the industry will certainly survive this phase. There are interesting, niche pharma stocks that are worth your attention.

Facing pricing pressures in the domestic and export markets, currency fluctuations, as well as manufacturing issues related to their plant, there is a transformation happening in the overall sector as to how business is done and will be done in the future.

Moving on to news from stocks in the banking sector... Axis Bank is in focus today after the private sector lender reduced interest rate on savings bank accounts by 50 basis points to 3.5% for deposits up to Rs 5 million.

The bank, in a regulatory filing said that it will continue to pay 4% interest on deposits of above Rs 5 million. The new interest rates will be effective from August 8.

Axis Bank's action follows the decision by State Bank of India (SBI).  SBI was the first bank to cut the savings deposit rate by 50 basis points to 3.5% for deposits up to Rs 10 million.

SBI's rate cut could ignite a rate war among the large state-run and private banks, but most mid-sized and small finance banks looking to gain incremental market share could decide to hold rates.

Bank of Baroda also followed suit and cut the rate to 3.5% on deposits of up to Rs 5 million. While Kotak Mahindra Bank retained the existing rates of 5% on savings deposits up to Rs 100,000 and 6% on deposits between Rs 100,000 and Rs 10 million, it reduced the rate on savings deposits of amounts above Rs 10 million crore and up to Rs 50 million from 6% to 5.5%.

The move comes just at a time when credit off-take was at a decade low.

According to RBI data, credit off-take was down to a decade low of 5.1% in FY17 compared to 10.7% a year ago. This was despite a declining cost of borrowing. The data shows the economy might still be reeling from the aftershocks of  HYPERLINK "https://www.equitymaster.com/diary/detail.asp?date=12/13/2016&story=3&title=Demonetisation-How-Much-of-Black-Money-is-in-Cash&utm_source=5MIN&utm_medium=website&utm_campaign=e-letter&utm_content=5wrap" \t "_blank" notebandi.

At the time of writing, Axis Bank share price was trading down by 1.6%

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