Sensex Surges 718 Points; Pharma Stocks Lead Gains

Mon, 29 Oct Closing

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After opening the day in green, share markets in India witnessed positive trading activity throughout the day and ended the day in above the dotted line. All sectoral indices traded in green, with stocks in the pharma sector and stocks in the realty sector, leading the gains.

At the closing bell, the BSE Sensex stood higher by 718 points (up 2.2%) and the NSE Nifty closed up by 221 points (up 2.2%). The BSE Mid Cap index ended the day up 2.8%, while the BSE Small Cap index ended the day up by 2.1%.

The rupee was trading at Rs 73.44 against the US$ in the afternoon session. Oil prices were trading at US$ 77.48 at the time of writing.

Asian stock markets finished mixed. As of the most recent closing prices, the Hang Seng was up by 0.3% and the Shanghai Composite was down by 2.5%. The Nikkei 225 was down by 0.1%. Meanwhile, European markets, were trading on a positive note. The FTSE 100 was up by 1.4%. The DAX, was up by 1.3% while the CAC 40 was up by 0.3%

In news from stocks in the pharma sector. Granules India share price was in focus today after the company's US subsidiary received two observations from the US Food and Drug Administration (USFDA).

The USFDA, after the completion of the inspection of the Chantilly, Virginia based facility, issued two observations in form 483 to the company.

As per USFDA, observations are made in Form 483 when investigators feel that conditions or practices in the facility are such that products may become adulterated or render injuries to health.

Granules India share price ended the day up 8.2%.

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 since FY17.

Generic Drug Approvals Hit the Roof

However, 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.

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.

Pharma stocks ended the day higher by 4.2%.

Moving on to news from stocks in the banking sector. ICICI Bank share price was among the top gainers today after the bank declared its quarterly results.

The bank reported a bigger-than-expected 56% fall in Q2 net profit, but its asset quality improved. It had posted September quarter net profit of Rs 9.1 billion (US$123.8 million) compared with a loss in the June quarter.

As a percentage of total advances, GNPA (gross non-performing assets) stood at 8.54% in the September quarter, compared with 8.81% in the June quarter.

Net interest margins improved to 3.33% from 3.19% last quarter and retail fee income growth of 17% year on year. Loan growth was at 13% year on year, within which domestic loan grew 16% from a year ago.

ICICI Bank share price ended the day up 10.8%.

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