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Dull End to the Trading Day; Metal & Auto Stocks Fall
Thu, 23 Nov Closing

Small caps have comfortably outperformed the Large caps and how. The BSE Small Cap Index has returned 21.7% in FY18 compared to 12.5% by BSE 100 and 11.7% by the Sensex.

Small Caps - Outperformers in Current Financial Year

Expectedly, valuations of certain Small cap companies have gone through the roof. It is important to understand the highly volatile nature of these stocks. In a downturn, these stocks tend to move in the opposite direction much faster as well.

While there, undoubtedly, lies hidden opportunities in the small cap space, it is important to focus on fundamentals of these stocks. Next, assess if they have the potential to move on to the 'Safe stock' category in the future.

Asian stock markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.48%, while the Shanghai Composite & the Hang Seng fell 2.29% and 0.99% respectively. European markets are mixed. The CAC 40 is higher by 0.16%, while the FTSE 100 is leading the DAX lower. They are down 0.29% and 0.13% respectively.

Rupee was trading at Rs 64.79 against the US$ in the afternoon session. Oil prices were trading at US$ 57.83 at the time of writing.

In news from economy, days after upgrading India's sovereign rating to Baa2 from Baa3 with a stable outlook, global credit rating agency Moody's Investors Services in its latest report has stated that Indian companies will see an improvement in its credit profile in the year 2018.

The report notes the companies will improve on the back of better sales as it expects Goods and Services Tax (GST)-related activity disruption to diminish, leading to an all over recovery in economic activities.

Besides, it noted that refinancing needs in 2018 would be manageable for most companies, given their improving access to capital markets and their large cash balances. It also said that corporates' cross-border bond maturities will also be manageable for the next three years.

The rating agency expects that the country's Gross domestic product (GDP) growth of around 7.6% will result in higher sales volumes, which, along with new production capacities and benign commodity prices, will support an EBITDA (earnings before interest, taxes, depreciation and amortisation) growth of 5-6% over next 12 to 18 months.

Adding further, it said that a further simplification of GST and other structural reforms, or an improvement in commodity prices, resulting in higher operating profit could further improve companies' credit profiles. Apart from this, it noted that an improvement in asset valuations, providing a means of deleveraging for some corporates will also result in improvement in their credit profiles.

Moving on to news from steel sector. As per a leading financial daily, Steel Authority of India Ltd (SAIL) is heading for a turnaround this year as the government orders belt-tightening and asset disposals at the loss-making 63-year-old mill.

The ministry has directed the company to better compete with private mills in the race to meet the nation's growing demand.

In addition to appointing Boston Consulting Group, the ministry has set up a panel to revive the fortunes of SAIL in line with steel minister Birender Singh's directive for officials to play a more active role in turning around plants.

External pressure seems to be building on SAIL. State-run Indian Railways recently issued a global tender for purchasing rails outside its traditional supplier SAIL, opening the doors to private steel producers to compete in the local market.

SAIL share price finished the day up by 0.7%.

Moving on to news from stocks in the pharma sectorBiocon share price finished up by 0.8% on the BSE after the firm launched KRABEVA, a biosimilar Bevacizumab, in India.

The drug is used for the treatment of patients with metastatic colorectal cancer and other types of lung, kidney, cervical, ovarian and brain cancers

KRABEVA is the second key oncologic biosimilar product from Biocon's global biosimilars portfolio to be launched in India, in order to address the unmet patient need for affordable biological therapies.

In another development, Zydus Cadila has received the tentative approval from the United States Food & Drug Administration (USFDA) to market Tadalafil Tablets USP.

The drug is indicated for the treatment of erectile dysfunction and the signs and symptoms of benign prostatic hyperplasia. It will be manufactured at the group's formulations manufacturing facility at Moraiya, Ahmedabad.

The group now has more than 170 approvals and has so far filed over 310 ANDAs since the commencement of the filing process in FY 2003-04.

Cadila healthcare share price finished the day up by 0.1%.

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, Research Analyst thinks there is.

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.

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

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