Indian Indices End on a Strong Note; Sensex Ends 379 Points Higher

Tue, 5 Mar Closing

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After opening the day marginally lower, Indian share markets witnessed most of the buying interest during closing hours and ended on a strong note. Gains were seen in the metal sector, oil & gas sector and automobiles sector, while IT stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood higher by 379 points (up 1.1%) and the NSE Nifty closed higher by 124 points (up 1.1%). The BSE Mid Cap index ended the day up 2% and the BSE Small Cap index ended the day up by 3.1%.

Asian stock markets finished on a mixed note. As of the most recent closing prices, the Hang Seng was up by 0.1% and the Shanghai Composite was up by 0.9%. The Nikkei 225 was down 0.4%.

The rupee was trading at 70.52 against the US$.

The rupee appreciated by 11 paise to 70.81 against the US$ in opening trade today, driven by weakening of the greenback in overseas markets and fresh foreign inflows.

So far this year, the rupee has declined 1.6% while foreign investors have bought $2.3 billion in equity and sold $1.7 billion in debt market.

In the news from the mutual funds space, Indian securities market regulator board has approved changes in its norms for open offer exemptions for corporates facing debt restructuring as also for debt instrument valuation by mutual funds to make these processes fairer.

As per the news, the regulator will amend its norms for valuation of money market and debt securities by mutual funds to make the process fairer and uniform across the industry to safeguard investors from default like scenarios.

The proposal seeks to make the valuation practices more reflective of the realizable value of money market and debt securities with residual maturity up to 60 days.

Accordingly, the residual maturity limit for amortization-based valuation by mutual funds will be reduced from 60 days to 30 days.

The threshold maintained between reference price and valuation price would be plus or minus 0.025%, while the reference price will be taken as security level price given by the valuation agencies.

The above process will bring in fairness and transparency in the valuation of securities by mutual funds and thus bodes well for the mutual fund investors.

Also, speaking of mutual funds, the ghosts of the IL&FS crisis continue to haunt Indian mutual funds. More so, when it comes to their debt exposure.

Debt mutual fund managers have been facing a tough time due to tight liquidity post the IL&FS crisis.

The credit risk of their assets has shot up in the aftermath of the crisis. So ideally, to offset this rising credit risk, funds should have piled up on risk-free government bonds.

However, it turns out that mutual funds have been net sellers of government bonds since the beginning of 2018.

And the intensity of the selling has only increased in the months following September 2018.

As a percentage of their total assets under management, government security exposure has dropped to 3.3% by January 2019, from 5.4% in August 2018.

Mutual Funds Playing with Fire with Steep Corporate Debt Exposure

Here's what Tanushree Banerjee wrote about this in today's edition of The 5 Minute WrapUp...

• Instead, in the greed of marginally higher yields from risky corporate borrowers (compared to G-Sec yields), funds are piling up on corporate debt.
  
  Keep in mind that corporate debt papers are not only relatively riskier but also comparatively illiquid. By exposing investors to such risk without their knowledge, debt fund managers are doing them a huge disservice.

In the news from pharma space, Cadila Healthcare share price was in focus today as the company received the United States Food and Drug Administration (USFDA) approval to market Rivastigmine Transdermal System. This marks the company's first approval for a transdermal product in the US.

The company in a filing said that Rivastigmine Transdermal System is indicated for the treatment of dementia (memory loss) associated with Alzheimer's and Parkinson's diseases. It will be manufactured at Zydus Technologies Ltd, the group's manufacturing facility dedicated to the production oftransdermals, located at SEZ, Ahmedabad.

Last month, the company received the final approval from the USFDA to market Triamterene and Hydrochlorothiazide Capsules USP (US RLD-DYAZIDE), 37.5 mg/25 mg.

To know more about the company, you can read Cadila Healthcare Q3FY19 result analysis and Cadila Healthcare Annual report analysis 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.

To know more on what moved the Indian stock markets today, you can check out the most recent share market updates here.

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