Indian Indices Trade Marginally Higher; IT Stocks Witness Buying

Tue, 10 Oct 11:30 am

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After opening the day in the green, stock markets in India have continued their momentum and are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the IT sector and power sector witnessing maximum buying interest. Realty stocks are trading in the red.

The BSE Sensex is trading up 100 points (up 0.3%) and the NSE Nifty is trading up 30 points (up 0.3%). The BSE Mid Cap index is trading up by 0.7%, while the BSE Small Cap index is trading up by 0.9%. the rupee is trading at 65.25 to the US dollar.

In the news from pharma sector, Biocon share price is witnessing buying interest today. Most of the gains are seen as the company said the US drug regulator has issued complete response letter to a proposed biosimilar being developed jointly by Biocon and Mylan.

As per the news, the US Food and Drug Administration (USFDA) has issued a complete response letter (CRL) for Mylan's Biologics License Application (BLA) for MYL-1401H, a proposed biosimilar pegfilgrastim. This product is a part of the biosimilars portfolio being developed jointly by Biocon and Mylan.

The CRL relates to the pending update of the BLA with certain CMC data from facility requalification activities post recent plant modifications.

Biocon does not expect the above CRL to impact the commercial launch timing of biosimilar pegfilgrastim in the US and said that it is committed to working with the agency to resolve the issues stated in the CRL expeditiously.

At the time of writing, Biocon Ltd share price was trading up by around 3.5%.

One shall note that USFDA alerts on Indian pharma companies have increased over the past few years. Regulators used to visit the plants every two years. Now they come every eight months. Increasing inspections have led to a total of 41 import alerts in the past eight years - 33 of them (80%) in just the last four years (2013-16). This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realisations.

However, the recent development of USFDA expediting the drug approval process can bring some respite for Indian pharma companies. This comes as drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year, as can be seen from the chart below:

Expediting Drug Approval Process to be a Positive for Industry

While short-term pain is expected, companies with strong R&D capabilities and compliant plants will do well over the long term. The uncertainties make it important to be stock specific in the sector. It is important to look for companies that have the competence and staying power to overcome the challenges.

In the news from GST space, the GST Council is planning reduce the number of products in the highest tax slab, following a series of complaints by state finance ministers.

As per the news, state finance ministers had argued that several common-use products face a 28% levy, and this is causing hardship to people.

At present, a number of items like bath fittings, cement, steel products such as rods used for construction are in the top bracket.

Last week, CBEC officials had also said that there were far too many items in the top slab.

Speaking of Goods and Services Tax (GST), the tax regime today completes 100 days since its rollout.

Till date, nine million enterprises are registered under the GST network. Of which, 2.6 million are new GST assesses and 6.4 million taxpayers are from the past regime. The new additions signify an increase of 40% to the previous tax base.

The tax collections too have largely been met. Against the target set by government for Rs 910 billion, the tax revenue collected for August was Rs 906 billion.

While, the tax seems to benefit the organized players in a big way, it is the unorganized segment who have taken a big hit. First, it was demonetization and now it is the implementation of GST. This hit is well reflected in the gross domestic product numbers. GDP growth has slumped to 5.7% in the June quarter from a high of 7.9% clocked in the June quarter of 2016.

To boost the economic scenario, the government recently came out with certain relaxations under the goods and service tax (GST).

Apart from tax rates being reduced on twenty-seven items, the government relaxed the compliance burden on the small and medium sized enterprise (SME). SMEs with an annual turnover of less than 15 million can now fill quarterly returns, as compared to monthly returns before. Also, the annual turnover limit under the composition scheme which enables firms to pay tax at concessional rates have been raised from Rs 7.5 million to Rs 10 million.

Not only this, concerns of exporters too have largely been addressed by removal of interstate GST till March 2018 and an assurance to clear the refunds at a faster pace.

The transition to goods and service tax (GST) is a tough one and we believe if implemented properly, the tax will reap huge benefits to the listed organized companies in the long run.

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