Indian Markets Open Marginally Higher; Pharma & Power Stocks Lead

Fri, 30 Dec 09:30 am

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Asian markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.40% while the Hang Seng is up 0.85%. The Shanghai Composite is trading up by 0.04%. Stock markets in the US closed their previous session on a weak note.

Meanwhile, Indian share markets have opened the day marginally higher. The BSE Sensex is trading higher by 124 points while the NSE Nifty is trading higher by 21 points. The BSE Mid Cap index and BSE Small Cap index have opened the day down by 0.7% & 0.5% respectively. The rupee is trading at 68.12 to the US$.

All sectoral indices have opened the day in green with capital goods, healthcare and power stocks witnessing maximum buying interest.

According to an article in a leading financial daily, it was reported that the profitability of domestic cotton spinners are likely to be hurt due to weak export demand and high cotton prices. A report by ICRA points out that, while the commencement of the cotton harvest season has been accompanied by a softening of the domestic price, however, it remains 17% higher year-on-year.

Overall, yarn demand is unlikely to get immediate support amid low exports and curtailed consumer spending after the demonetisation drive. Accordingly, spinners will have to sacrifice capacity utilisation or contribution, and hence profitability is likely to remain under pressure, the reports noted.

Besides, weakness in export demand poses challenges for the domestic spinning industry. Cotton yarn exports have been under pressure due to lower demand from China amid improved local mill usage. Apart from profitability pressures, high cotton prices will translate into higher working capital requirements, and hence higher borrowings and weaker credit metrics of players.

In this regard, we highly recommend you to read an interesting piece penned by Vivek Kaul in his Diary titled, What's Common Between Egyptian Cotton and Indian Pulses?

Moving on to the news from stocks in pharma sector. According to an article in The Business Standard, Lupin Limited announced that it has received tentative approval for its Balasalazide Disodium Tablets, 1.1 gm from the United States Food and Drug Administration (USFDA) to market a generic version of Salix Pharmaceuticals Inc's Giazo Tablets, 1.1 gm. Balasalazide Disodium tablets are indicated for the treatment of mildly to moderately active ulcerative colitis.

Reportedly, the filing is from Lupin's Goa manufacturing facility. As per IMS MAT September 2016, Giazo Tablets had US sales of US$0.79 million.

Lupin is an innovation led transnational pharmaceutical company developing a wide range of branded & generic formulations, biotechnology products and active pharmaceutical ingredients (APIs) globally. Our pharma sector analyst, Bhavita Nagrani, is of the opinion that Lupin was able to insulate its growth despite rising pressures in the sector. She has recently shared a detailed view on the company and valuations in the recommendation report of The India Letter.

In the meanwhile, Indian pharmaceuticals market has increased at a CAGR of 17.5% during 2005-16 with the market increasing from US$ 6 billion in 2005 to US$ 36.7 billion in 2016 and is expected to expand at a CAGR of 15.9% to US$ 55 billion by 2020.

Revenue of Indian Pharma Sector Over the Years

By 2020, India is likely to be among the top three pharmaceutical markets by incremental growth and sixth largest market globally in absolute size. India supply 20% of global generic medicines market exports in terms of volume, making the country the largest provider of generic medicines globally and expected to expand even further in coming years, the reports noted.

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.

Lupin's share price opened the day up by 0.5%.

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