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Sensex Ends Lower; IT Stocks Slump 2.4% on Worries over H-1B visas
Fri, 6 Jan Closing

The Indian share markets finished the week marginally lower. At the closing bell, the BSE Sensex closed lower by 119 points, whereas the NSE Nifty finished lower by 30 points. The S&P BSE Midcap ended down by 0.3% while the S&P BSE Small Cap finished down by 0.4%. Sectoral indices ended the day on a negative note with only banking, healthcare & metal stocks in green.

Asian markets finished mixed as of the most recent closing prices. The Hang Seng gained 0.21%, while the Shanghai Composite led the Nikkei 225 lower. They fell 0.35% and 0.34% respectively. European markets are lower today with shares in France off the most. The CAC 40 is down 0.31% while Germany's DAX is off 0.25% and London's FTSE 100 is lower by 0.07%.

The rupee was trading at Rs 68.18 against the US$ in the afternoon session. Oil prices were trading at US$ 53.96 at the time of writing.

S&P BSE IT Index ended the day down by 2.4% after it was reported that two US Congressmen have reintroduced a bill to curb the use of H-1B visas, on which the Indian IT sector is particularly dependent. Meanwhile, according to an article in The Financial Express, Tech Mahindra has announced joint venture with Saudi Arabia-based Midad Holdings, a part of diversified business conglomerate Al Fozan Group. Tech Mahindra will have a majority ownership of the JV named Tech Mahindra Arabia, which will focus on opportunities in Saudi Arabia.

The decision to set up a local joint venture company aligns very well with Tech Mahindra's vision of offering localized technology solutions by building a strong local presence and thus contributing to the local economy. Al Fozan Group has a presence retail, manufacturing, real estate and trading activities.

One must note that, Tech Mahindra has been present in Saudi Arabia since 2006 and has over 1,600 employees catering diverse set of clients. The company has made several acquisitions in this segment to enhance its presence across the value chain and expand its footprint globally. What is more commendable, in spite of multiple acquisitions, the company has been able to maintain its debt to equity ratio at very low levels.

Large Acquisitions Yet Low on Leverage

Tanushree Banerjee, Co-head of Research is of the view that for the upcoming period the pace of acquisitions will slow down. Further, will the synergies of acquired companies (Subscription Required) help in better cash flows? Here's what she has to say:

  • "Tech Mahindra is now rightly considered acquisitions specialist! The company has made a slew of acquisitions since Satyam. And has been fairly successful at the integration. With more than US$4 billion in revenues, over 800 clients and a presence in more than 90 countries, Tech Mahindra has become a force to reckon with."

India is an information technology powerhouse. Indian IT companies have been increasingly focusing on the Middle Eastern market as they look to offset slower growth in key regions like the US. In an extremely challenging global economy, western corporations are now expecting Indian IT firms to deliver a more compelling value proposition in terms of growth prospects. Going forward, whether the Indian IT firms are up to the task will be the key thing to watch out for.

Tech Mahindra's share price ended the day down by 3.8%.

Moving on to the news from stocks in pharma sector. Wockhardt's share price surged by 5.2% after it was reported that Wockhardt's Gujarat unit in Ankleshwar has cleared an inspection of German drug regulator. Now the German clearance allows the company to continue its supply of APIs across the European Union.

The move comes the two days after receiving a warning letter from US Food and Drug Administration (USFDA) for its active pharmaceutical ingredient (APIs) for the same plant. The warning was issued to the company for violating current good manufacturing practice norms, including its failure to ensure proper clothing for workers at its Ankleshwar plant.

The certificate is issued for the unit which complies with the principles and guidelines of Current Good Manufacturing Practice regulations. The certificate issued in this regard is valid for 3 years.

Notably, European Union contributed about 37% of Wockhardt's revenue of Rs 44.6 billion in the year ended March, followed by India at 32%. APIs produced in Ankleshwar plant are used in formulations exported to the European market.

Recently, in one of our editions of The 5 Minute WrapUp, we have spoken about the USFDA crackdowns faced by the Indian Pharma in the recent times and how they have been constantly investing towards R&D. We believe pharma companies that are upgrading and keeping facilities compliant, and have niche product pipelines in place will see sustained revenue growth going forward.

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

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