Sensex Drops 200 Points; IDBI Bank Down 5% After Fraud
Closing

After opening the day in red share markets in India witnessed negative trading activity throughout the day and ended the day below the dotted line. Sectoral indices too ended the day in red, with stocks in the pharma sector and stocks in the metal sector leading the losses.

At the closing bell, the BSE Sensex stood lower by 206 points (down 0.6%) and the NSE Nifty closed down by 63 points (down 0.6%). The BSE Mid Cap index ended the day down 0.5%, while the BSE Small Cap index ended the day down by 0.9%.

Asian stock markets too finished in red. As of the most recent closing prices, the Hang Seng was down by 2.5% and the Shanghai Composite was down by 1.4%. The Nikkei 225 was down by 1.3%. Meanwhile, European markets, too were trading on a negative note. The FTSE 100 was down by 0.1%, The DAX, was down by 0.9% while the CAC 40 was down by 0.9%.

The rupee was trading at Rs 65.19 against the US$ in the afternoon session. Oil prices were trading at US$ 64.78 at the time of writing.

In news from stocks in the banking sector. IDBI Bank share price was in focus today as the bank disclosed a Rs 7.7 billion fraud.

IDBI Bank Ltd said that fraudulent loans of Rs 7.7 billion (US$ 118.8 million) were issued from five of its branches in Andhra Pradesh and Telangana.

Some of the loans, which were issued during fiscal years 2009-2013 for fish farming businesses, were obtained against fake lease documents of non-existent fish ponds and by inflating the value of collateral, the company said.

The company found major lapses in processing and disbursing the loans by two of its officials. The Central Bureau of Investigation (CBI), has registered cases for two of the five complaints, relating to branches at Basheerbagh and Guntur, the company said.

The bank said earlier on Tuesday it initiated a quality assurance audit, expected to be completed by April.

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Buffett's and Peter Lynch's principle of not watering weeds fits in perfectly well with the businesses of banking as well. Banks, in principle, must be careful about not extending loans to borrowers with poor creditworthiness or payment track record. That too, irrespective of the size of the borrower.

However, the data from State Bank of India shows that when it comes to big corporate borrowers, our banks literally look the other way. The share of large corporates, in total advances of the banking sector, has almost remained unchanged over past three years (at an average of 55%).

However, their contribution to incremental slippages has been huge. At one point, the big corporate borrowers accounted for nearly 90% of total NPAs of the sector.

Therefore, according to us, banks with large corporate books (be it PSUs or private sector) deserve a lower valuation if they can't keep NPAs in check.

IDBI Bank share price ended the day lower by 5.5%.

Moving on to news from stocks in the pharma sector. Alkem Labs share price ended the day on a weak note as the US Food and Drugs Administration (USFDA) noted 14 observations for objectionable conditions at its manufacturing units at Amaliya in Daman and St Louis in the US following inspections.

The USFDA had conducted an inspection at the Daman unit from March 19-27, 2018.

Post the inspection, the company has received a Form 483 with 13 observations.

As per the USFDA, Form 483 notifies the company's management of objectionable conditions based on observations made by its investigators about the conditions or practices which would 'indicate that any food, drug, device or cosmetic has been adulterated or is being prepared, packed, or held under conditions whereby it may become adulterated or rendered injurious to health.'

The company further said the USFDA had also conducted an inspection at its manufacturing unit at St Louis from March 12-15, 2018.

In response to one Form 483 observation issued by the USFDA, it has submitted a detailed corrective and preventive action plan to the regulator within the stipulated timeline.

Alkem Labs share price ended the day down by 5.5%.

BSE Healthcare Index Down 26% in Three Years

Is this the right time to buy pharma stocks?

There was a time when almost every stock in the pharma sector was considered to be a safe stock. You could just pick the top 5-6 companies from this sector and expect to make decent returns over time.

In fact, it was termed as defensive sector. However, in last two years things have changed a lot. There is enormous uncertainty in the industry.

Uncertainty regarding price erosion in the United States as well as hostile US FDA visits, have changed a once defensive sector into a risky sector.

However, we believe this could be point of consolidation in the industry i.e. with stricter norms, lower margins, and pricing pressure, the industry may see many exits and acquisitions. This could lead to relatively fewer but higher quality players.

We believe, if you can pick a niche company with good financials and strong management, this is a good time to consider pharma stocks.

And here's a note from Profit Hunter

It was a short trading week for the Indian stock markets. The Nifty 50 Index traded on a positive note during the week.

On Monday, it opened the session down, but witnessed solid buying interest to end the session 133 points up. Subsequently, the positive momentum continued for the next trading session. But the index slipped 63 points down on the futures and options (F&O) expiry day. The index finally ended the weekly session 1.23% up.

Last week, we saw the index closing below its 200 day moving average (DMA), which acted as a good support in the past. But now the 200 DMA is acting as a good resistance (previous support act as a resistance post the break-out)

This week, the 10,000-10,100 zone which acted as a good support in the past saved the index from dropping further down.

So can the index hold this support zone in the week to come or will it break out of the zone to continue sliding down? The derivative and rollover data can shed some light on this. Read our detailed analysis on the derivatives data in Monday's Profit Hunter Pro newsletter (subscription required). To subscribe, click here.

Nifty 50 Index Trades on a Positive Note
Nifty 50 Index Trades on a Positive Note 

Sensex Continues Downtrend; GSK Consumer Down 9%
01:30 pm

After opening the day in red, share markets in India have continued to slide and are trading below the dotted line. Sectoral indices are trading on a mixed note with stocks in the metal sector and stocks in the metal sector leading the losses.

The BSE Sensex is trading down by 175 points (down 0.5%), and the NSE Nifty is trading down by 53 points (down 0.5%). Meanwhile, the BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index is trading down by 0.8%. The rupee is trading at 64.94 to the US$.

Lupin share price was in focus today, after it was reported that the company received a ANDA (abbreviated new drug application) approval from the United States Food & Drug Administration (USFDA) for Clobetasol Propionate Spray.

The drug is a generic version of Galderma Laboratories' Clobex Spray.

According to IQVIATM sales data, the Clobex Spray had sales of around US$ 30.5 million in the US for the twelve months ended January 2018.

Indian pharma companies catering to the US markets are breathing a sigh of relief. After being adversely affected by import bans and the suspension of new drug approvals from manufacturing facilities in the past three years, there has been a sharp pick-up in new drug approvals in FY17.

Expediting Drug Approval Process to be a Positive for Industry

However, note that USFDA alerts on Indian pharma companies have increased over the past few years. Regulators used to visit the plants every two years. Now they come every eight months. Increasing inspections have led to a total of 41 import alerts in the past eight years - 33 of them (80%) in just the last four years (2013-16). This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realisations.

However, the recent development of USFDA expediting the drug approval process can bring some respite for Indian pharma companies. This comes as drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year.

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While short-term pain is expected, companies with strong R&D capabilities and compliant plants will do well over the long term. The uncertainties make it important to be stock specific in the sector. It is important to look for companies that have the competence and staying power to overcome the challenges.

At the time of writing Lupin share price was trading up by 0.8%.

Moving on to news from stocks in the FMCG space. GSK Consumer Healthcare share price is among the top losers on the bourses today.

The selloff came amid news that the company is looking to put iconic Horlicks for sale.

According to a leading financial daily, British pharmaceutical company GlaxoSmithKline plc will assess its Indian consumer healthcare subsidiary as it looks to fund a $13 billion buyout of Novartis' stake in their global consumer healthcare joint venture.

This is part of a 'strategic review' of consumer nutrition products that may include the sale of Horlicks, for which India is a big market.

It is not clear whether this assessment means that GSK plc would dilute its 72.5% stake in the subsidiary, GSK Consumer Healthcare. Horlicks Ltd held 43.16% stake in GSK Consumer Healthcare Ltd as of December 2017.

The combined sales of Horlicks and other nutrition products were approximately £550 million in 2017, GSK said in its statement. Nearly 85-90% of total Horlicks sales come from the India market. Besides India, GSK sells Horlicks in Sri Lanka and Bangladesh.

GSK expects the outcome of the strategic review to be concluded around the end of 2018, the company stated in a global release. It added that there can be no assurance that the review process will result in any transaction.

According to GSK, the company will increase focus on OTC and oral health categories. This portfolio includes Sensodyne toothpaste, Eno antacid, Panadol headache tablets, muscle gel Voltaren and Nicotinell patches, among others.

At the time of writing, GSK Consumer share price was trading down by 9%.


Sensex Trades in Red; Metals Sector Leads Losses
11:30 am

After opening the day in red, share markets in India have continued the downtrend and are presently trading below the dotted line. Sectoral indices are trading mixed with stocks in the metals sector and stocks in the power sector trading in red. While stocks in the consumer durables sector are trading in green.

The BSE Sensex is down by 160 points (down 0.5%) and the NSE Nifty is trading down by 50 points (down 0.5%). Meanwhile, the BSE Mid Cap index is trading down by 0.2%, while the BSE Small Cap index is trading down by 0.5%. The rupee is trading at 65.01 to the US$.

In the news from the commodity space, as per a leading financial daily, the Organization of the Petroleum Exporting Countries (OPEC) and Russia are working on a long-term deal to cooperate on oil supply curbs that could extend controls over world oil supplies by major exporters for many years to come.

As per the news, Saudi Crown Prince Mohammed bin Salman said that Riyadh and Moscow were considering extending an alliance on oil curbs that began in January 2017 after oil prices crashed.

Note that crude oil prices have been witnessing a rising trend of late. It hit its 28-month high level in November, as can be seen from the chart below, and is trading at similar levels presently.

Crude Oil Hits 28-Month High

However, this is not good news from India's perspective.

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As we wrote in a recent edition of The 5 Minute WrapUp...

  • Fiscal revenues are at risk. Particularly if the government is forced to consider a cut in fuel excise duties due to a rally in oil prices. In recent times, a sharp jump in excise collections has helped indirect tax collections. Any risk to revenues and subsequent threat to the fiscal deficit target at 3.2% of GDP would require tighter spending cuts.
    central bank's scope for further rate cuts.

    Lastly, low crude prices were a positive growth impetus through higher discretionary incomes for households and lower input costs for manufacturers and farmers. Part of this benefit is likely to be eroded as retail fuel costs rise. As for corporations, expansion in gross margins caused by falling commodity prices is also likely to wane, pressurising profitability.

You can read the entire article here.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter

team. Their commentary tracks the developments in the global economy as well as stock, currency, and commodity markets.

In the news form the GST space, as per an article in the Economic Times, the goods and services tax (GST) collections dipped marginally for February to Rs 851 billion, with only 69% filing returns as on March 26.

The collection for January was Rs 889 billion at the last count.

The last date for filing GST returns is 20th of the successive months, but a significant number are still not filing by then. The total number of those registered for GST is now 1.05 crore.


Sensex Opens Lower; Hindustan Aeronautics IPO Makes a Weak Debut
09:30 am

Asian stocks are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 1.77% while the Hang Seng is down 1.28%. The Shanghai Composite is trading down by 0.80%. US stocks closed sharply lower on Tuesday, erasing earlier gains, as a decline in the broader tech sector brought the major averages down.

Back home, India share markets opened the day on a negative note. The BSE Sensex is trading lower by 152 points while the NSE Nifty is trading lower by 56 points. The BSE Mid Cap index and BSE Small Cap index opened the day down by 0.5% & 0.7% respectively.

All sectoral indices have opened the day in red with metal stocks and PSU stocks witnessing maximum selling pressure. The rupee is trading at 64.80 to the US$.

In the news from the telecom sector. As per an article in a leading financial daily, the proposal to merge Vodafone India and Idea Cellular, to create the country's largest telecom company, is in the final stages of approval.

The two companies last week announced the top deck for the soon-to-be-merged entity, naming Balesh Sharma as the new CEO.

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------------------------------

Vodafone and Idea, the second and the third largest operators in the country, recently announced the new leadership team of the merged entity that will have Kumar Mangalam Birla at the helm as the non-executive Chairman.

The merger - slated to create India's largest telecom operator in terms of customer base and revenue market share - is expected to be completed by June this year, subject to statutory approvals.

The combination, which is set to dislodge the numero uno player Bharti Airtel, was imminent as the incumbent operators have been bruised by aggressive tariffs from newcomer Reliance Jio, triggering a price war in the industry.

The merged entity is projected to be worth over US$23 billion with a 35% market share.

Reportedly, the Department of Telecom is in the final stages of drafting the new National Telecom Policy 2018, and will thereafter place it before the Telecom Commission for approval.

One shall note that, the whole telecom business has been an underwhelming story so far. While the telecom subscriber base has increased from 300 million in 2008 to 1.2 billion in 2017, investors have little to cheer.

The BSE Sensex has gone up 3.25 times in nine years, but the BSE Telecom Index has not moved an inch from its levels of 2008.

Telecom Sector: A decade of Underperformance

Telecom companies are straddled with high debt, intense competition, and lack of pricing power. High spectrum costs and regulatory issues have hampered the sector.

While consumers have benefited from low costs and new players fighting for their share, investors have suffered.

Going forward, whether the situation will change in the future will be the key thing to watch out for.

Idea Cellular share price opened the day down by 0.4%.

Moving on to the news from the pharma sector. As per an article in a leading financial daily, Fortis Healthcare Ltd will sell its hospital business to Manipal Hospitals Enterprises Private Ltd, creating the largest provider of healthcare services in India by revenue.

Reportedly, for every 100 shares of Fortis held, a shareholder will receive 10.83 shares in Manipal Hospitals, the combined company that will be created following the deal.

Fortis said it approved the sale of a 20% stake in diagnostics chain SRL Ltd to Manipal Hospitals, providing Fortis with more than Rs 700.

Manipal Hospitals will be a publicly-traded company listed on the National Stock Exchange and the Bombay Stock Exchange, while remaining businesses with Fortis Healthcare will be an investment holding company with 36.6% stake in SRL.

Further, Dr Ranjan Pai and US-based private equity firm TPG Capital, a shareholder in Manipal Hospitals since 2015, will invest Rs 39 billion in Manipal Hospitals, to finance the acquisition of 50.9% stake in SRL.

Manipal Hospitals is in discussions to buy 30.9% held by other investors in the diagnostics chain.

The investment will also support the proposed acquisition of hospital assets owned by RHT Health Trust and the growth of the hospitals and the diagnostics businesses, the reports stated.

Fortis Healthcare share price opened the day down by 7.1%.


Indian Indices Recover Steadily, Key Sectors Rebound, and Top Stocks in Action
Pre-Open

On Tuesday, share markets in India opened on a positive note but ended the day in green.

The BSE Sensex closed higher by 108 points to end the day well above the 33,000 mark at 33,. While the broader NSE Nifty ended the day higher by 54 points to end at 10,184 levels.

Among BSE sectoral indices, metal stocks rose the most by 1.7%, followed by PSU stocks at 1.6%. SBI and IndusInd Bank were among the top gainers.

Top Stocks in Action Today

JSW Steel share price is likely to be in focus today after reports that the company is planning to invest up to US$ 500 million to expand its Texas operations through its US unit, as part of a Memorandum of Cooperation signed with the Texas Governor's office.

Glenmark Pharma share price is among the stocks to watch today, after it was reported that the company received a ANDA (abbreviated new drug application) approval from the United States Food & Drug Administration (USFDA).

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Government Borrowing to Shrink

In order to ease the pressure on the local bond markets, the Central government will borrow Rs 2.88 trillion in the April-September period of 2018-19 (H1FY19), which is lesser than Rs 3.72 trillion it had borrowed during the same period of FY18.

The borrowing for the first half of 2018-19 works out to 47.6% of budgeted gross market borrowing which is much lower than the average of 60-65% in the last five years.

Department of Economic Affairs (DEA) Secretary Subhash Chandra Garg has said that the government will also come out with inflation indexed bonds linked to consumer price index (CPI) inflation. He also informed that the government will introduce a new bucket of bonds with duration of one to four years, indicating its willingness to borrow more through short-term securities.

Besides, he noted that the budgeted gross borrowing through G-Secs for fiscal 2018-19 was Rs 6.05 trillion which would be used to fund the fiscal deficit of 3.3% of GDP.

The government also plans to reduce the G-Sec buyback by Rs 250 billion in the next fiscal. In addition to this, he said that the government will withdraw up to Rs 1 trillion from the National Small Savings Fund (NSSF) -- Rs 250 billion more than in the current financial year -- to fund the fiscal deficit.

He added that this could reduce the overall market borrowing programme of the government for the entire fiscal.

IPO Buzz

Kolkata-based private lender Bandhan Bank made a stellar debut on bourses yesterday. The scrip of the company, which recently concluded its IPO subscription offer, got listed at Rs 499, a 33% premium to its issue price of Rs 375 and ended the day up 27% from its issue price.

To give you a bit of the bank's history, its parent company, Bandhan Financial Services (BFSL) was a NGO providing microfinance to economically disadvantaged women in rural West Bengal. It started the microfinance business in 2006. On August 23, 2015, when BFSL, transferred its entire microfinance business to Bandhan Bank, it was India's largest microfinance company by number of customers and size of loan portfolio.

Bandhan Bank and IDFC Bank were the only two entities to get the RBI's banking licenses in 2014.

To know more about the company, you can read our IPO analysis of Bandhan Bank (subscription required).

Moving on, the Rs 40.2 billion initial public offering (IPO) of ICICI Securities could only manage 78% subscription on the last day of the issue on Monday.

However, including anchor allotment, the issue received a total of 87.9% subscription.

In a statement, the company has successfully closed its proposed offer for sale (OFS) and has raised around Rs 35 billion. Out of this, around Rs 17.17 billion was raised from anchor investors.

The company's announcement meant it lowered the issue size to sail through. This is third subsidiary firm from the ICICI group to hit the market in past two years. The QIB portion was fully subscribed, but the quota for retail investors (88%) and non-institutional investors (33%) remained undersubscribed.

Overall, this was the fourth issue of the ICICI Group after ICICI Bank, ICICI Prudential Life and ICICI Lombard General Insurance.