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Sensex Ends Deep in Red on Post Noon Sell-off; Lupin Slumps 17%
Tue, 7 Nov Closing

Indian share markets remained under pressure in the afternoon session as oil prices surged overnight to their highest since mid-2015, raising concerns about the inflation outlook and hitting oil refiners such as Reliance Industries Ltd. Brent crude hovering around the US $64 a barrel mark is a concern for the country's domestic economy.

At the closing bell, the BSE Sensex closed lower by 360 points. While, the NSE Nifty finished lower by 102 points. Meanwhile, the S&P BSE Midcap Index and S&P BSE Small Cap Index ended down by 1.5% & 1.4% respectively.

Barring information technology stocks, all sectoral indices finished in red with pharma stocks, realty stocks and consumer durables stocks witnessing maximum brunt.

Overseas, Asian equity markets finished broadly higher today with shares in Japan leading the region. The Nikkei 225 is up 1.73% while Hong Kong's Hang Seng is up 1.39% and China's Shanghai Composite is up 0.75%. European markets are mixed today. The DAX is up 0.27% while the CAC 40 gains 0.03%. The FTSE 100 is off 0.03%.

The rupee was trading at Rs 64.81 against the US$ in the afternoon session.

Engineering stocks ended the day on a mixed note with Welspun Corp & TRF Ltd> leading the losses. Bharat Heavy Electricals' (BHEL) September quarter earnings missed street expectations today as profit increased 5.9% year-on-year despite operational loss, aided by other income.

Profit during quarter increased to Rs 1.2 billion, compared with Rs 1.1 billion in year-ago. On sequential basis, bottomline reported a 42.5% growth.

Revenue from operations in Q2 fell 5.8% year-on-year to Rs 61.7 billion, but grew by 15.2% from previous quarter, the company said.

At operational level (EBITDA - earnings before interest, tax, depreciation and amortization), BHEL has reported a loss of Rs 950 million in Q2FY18 against income of Rs 1550 million in year-ago and loss of Rs 880 million in previous quarter.

BHEL share price slumped 5.7% on the BSE.

Meanwhile, Lupin share price dived nearly 18% to hit the 52-week low after the US drug regulator issued warnings for company's two sites. USFDA issued a combined warning letter for company's Goa and Indore (Pithampur Unit II) sites.

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Reportedly, the USFDA warning will likely delay new product approvals from Goa and Pithampur facilities. There will be no disruption of existing product supplies from either of these locations.

Notably, the company had earlier received three form 483 observations for the Goa facility on 7 April 2017 and six form 483 observations for Pithampur (Unit II) on 19 May 2017.

Owing to this development, the BSE healthcare index fell 3.07% while the Nifty pharma index declined by 3.88% after Lupin shares came crashing.

Other healthcare stocks like Sun Pharma, Cipla and Dr Reddy's were also down by 2.3%, 7.1% & 0.3% respectively.

Speaking of blips, the BSE Healthcare Index has been going through more than a blip.

Price to Earnings Ratio (PE) of Top Pharma Companies

Domestic and export markets have both been challenging. Government regulations on branded generics have proved a roadblock in domestic markets. In developed markets, stringent USFDA checks on manufacturing plants along with price erosion in generics have eroded profitability.

There is a structural change taking place in the sector overall as to how business is done and will be done in the future. The pharma sector always traded at premium valuations in the past. It was labeled an 'evergreen' sector. Any small blip was considered an opportunity to buy.

It's important to understand every business has its ups and downs. This is where valuations can help. Here's what Kunal Thanvi, our research analyst, recently wrote about the sector:

  • "Pharma companies which can adapt to these changes will thrive in the long run. The uncertainties highlight it important to be stock specific in the sector. It is crucial to look for companies with the competence and staying power to overcome the challenges."

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And here's a note from Profit Hunter:

How the tables have turned with Pharma stocks are bleeding today. All the constituents of Nifty Pharma index (-4.30%) are trading in the red. Lupin (-17%), Cipla (-7%), and Glenmark (-3%) are the bottom players in the index.

Lupin touched a new 52-week low as the US Food and Drug Administration (USFDA) issued a warning letter to the company's Goa and Indore sites.

Last time we reviewed the stock, it was trading at 1,085. The stock witnessed some buying interest at that time and it had also formed a bullish divergence in the RSI indicator. This indicated a loss of downside momentum, which might have led the rebound in the short-term. As a result, the stock bounced 8% from that level.

But the bears continued to dominate and the stock slipped further down. Today, it crashed 17% with strong volumes.

But the RSI indicator has now formed an even stronger positive divergence with the price.

Let us see if the bulls can come to rescue or will the bears continue to dominate.

Lupin Hits Fresh 52-Week Low
Lupin Hits Fresh 52-Week Low

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