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Indian Indices Open Marginally Lower; Realty and Telecom Stocks Witness Selling
Tue, 4 Dec 09:30 am

Asian shares are trading on a mixed note today. The Nikkei 225 is down 1.2% while the Hang Seng is down 0.2%. The Shanghai Composite is trading up by 0.04%.

Back home, India share markets opened the day marginally lower. The BSE Sensex is trading down by 146 points (down 0.4%) while the NSE Nifty is trading down by 35 points (down 0.3%). The BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index has opened the day up by 0.2%.

Sectoral indices have opened the day on a mixed note with realty stocks and telecom stocks witnessing maximum selling pressure.

The rupee is trading at 70.51 to the US dollar.

From the banking space, Yes Bank share price is in focus today as the bank appointed TS Vijayan, a former chairman of Insurance Regulatory & Development Authority to its board of directors after a series of resignations.

As per a statement by the bank, the financial services veteran who also served Life Insurance Corporation of India would be an independent director.

In the news from commodity markets, crude oil is witnessing buying interest today. Crude oil prices extended the gains seen yesterday and rose today amid expected supply cuts by the OPEC.

Gains are also seen on the back of a mandated reduction in Canadian output.

As per the news, the Organization of the Petroleum Exporting Countries (OPEC) plus Russia and other allies are meeting on 6th and 7th December. Producers are discussing a supply curb of 1 million to 1.4 million barrels per day (bpd) and possibly more.

The OPEC meeting in Vienna will follow a gathering by the Group of 20 (G20) nations in Argentina, at which oil policy is expected to be discussed. The meet will also potentially lay the groundwork for an OPEC deal.

Note that OPEC's de-facto leader Saudi Arabia wants the cartel and its allies to cut output by about 1.4 million barrels per day (bpd), around 1.5% of global supply.

However, while OPEC is considering withholding supply, US crude oil production reached another record high last week at 11.7 million barrels per day (bpd), according to U.S. Energy Information Administration (EIA). So, this, on the other hand, is helping cap the sharp rise in crude oil prices.

Speaking of crude oil, India's crude oil production was lower by 4.2% in September 2018 as compared to last year.

India's Increasing Crude Oil Demand Supply Gap

The worrying factor is this was the lowest production this year.

Here's what Tanushree Banerjee wrote about it in one of the editions of The 5 Minute WrapUp...

  • Comparing domestic production with the crude oil processed by refineries gives an idea of the demand supply gap. Low domestic production as compared to the demand for crude oil places a huge burden on India's import bill.

    Rising crude oil prices could have severe implications. Rising inflation. Rising interest rates. Pressure on the government to cut excise duty, thereby impacting its revenues.

    We have seen some of this play out. With elections around the corner, expect a lot of subsidies on fuel prices. This is bound to worsen India's fiscal deficit further.

It would be interesting to see how this pans out. Meanwhile, we will keep you updated on all the developments from this space.

From the pharma space, Sun Pharmaceuticals share price is in focus today as the company yesterday said that it will work towards re-establishing credibility and corporate governance which could include the review of some past decisions.

This include decisions such as a US$ 250 million loan to employees and others and a possible buyout of a domestic company classified as a related party.

Note that the company's stock price plunged around 10% yesterday, hitting a six-month low after various allegations of mis governance and insider trading.

Last Tuesday, a note by Macquarie, an Australian brokerage firm went viral which raised concerns among the investing community.

The note raised questions about inadequate disclosures regarding the role of promoter Dilip Shanghvi's brother-in-law Sudhir Valia, Sun Pharma's past links with banned traders Ketan Parekh and Dharmesh Doshi, related party transactions involving promoter Shanghvi and guarantees given to real estate firm Suraksha Realty.

The note also questioned the selection of little-known London-based firm Jermyn Capital to manage the drug major's $275 million foreign convertible bond issue in 2004-07.

The markets regulator reportedly is planning to reopen the investigation into the insider trading case against the company and its promoters which was settled through consent mechanism.

Responding to the above news, Sun pharma denied all the allegations and said the information which was already available in the public domain had been portrayed in a way to indicate that something inappropriate had been done by the company.

To know more about the company, You can read Sun pharma Q2FY19 result analysis and Sun pharma fact sheet on our website.

Speaking of pharma sector, note that the BSE Healthcare Index has been on a roller coaster ride in the past few years. The period from 2012 to 2015 saw the index go up more than three times.

And since then it has been a painful ride downwards.

As we wrote in one of our editions of The 5 Minute WrapUp...

  • Pre-2015, pharma companies enjoyed a fairytale ride in the US market. Low labor costs, good chemistry skills, along with efficiency, ensured Indian companies could copy innovator drugs to make generic drugs at a fast pace.

    The generic business had lucrative margins for all major pharma players. But the party did not last long. In the quest to supply drugs quickly, they compromised on quality at their manufacturing facilities.

    No wonder, the US regulatory authority (USFDA) took strict action. Sun Pharma received a warning letter for its Halol manufacturing facility in 2015. It was like a bolt out of the blue. Since then, the downward spiral began and has continued till date.

We believe that pharma companies that invest in creating a pipeline of complex generics or building competencies in alternative dosage forms are better equipped to tackle the changing dynamics in the US generics market as well as in the overall industry.

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