Sensex Opens Marginally higher; Sun Pharma Up 1.2% on Successful Clinical Trial

Thu, 5 Jan 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 0.25% while the Hang Seng is up 1.21%. The Shanghai Composite is trading up by 0.05%. Stock markets in the US and Europe ended their previous session on a firm note.

Meanwhile, Indian share markets have opened the trading day marginally higher amid firm Asian markets. The BSE Sensex is trading higher by 130 points while the NSE Nifty is trading higher by 36 points. The BSE Mid Cap index and BSE Small Cap index both have opened the day up by 0.5%. The rupee is trading at 68.18 to the US$. All sectoral indices have opened the day in green with metal, auto and realty stocks witnessing maximum buying interest.

Cement stocks opened the day on a mixed note with Ambuja Cement and Birla Corporation leading the gains. According to an article in The Financial Express, demonetisation is likely to pull down growth of the cement sector this fiscal to 4% and may impact the debt level of small and medium firms.

The impact of demonetisation will flow to the economy mainly through the real estate and construction sector, which has strong linkages with cement and steel and they will turn credit negative in the short-run.

According to a report by India Ratings and Research, small and medium cement producers may come under stress in the next two quarters as their debt level would go up. The lower cement output for 2016-17 is expected due to the fall in production in the sector in November-December 2016. Cement production grew 4.3% in April-November and recorded a growth of 0.5% in November 2016.

On the other hand, a near 75% jump in the prices of petroleum coke, coupled with a similar rise in diesel costs, is likely to affect the margins of cement sector companies in the current financial year. Pet coke is a key raw material for the cement sector.

Valuations Stretched for Indian Cement Companies?

The higher input cost and lower demand are expected to limit the ability of cement manufacturers to pass on the higher prices to the end consumers, thus potentially squeezing margins, the reports noted. Recently, the Rajya Sabha approved the amended Mines and Minerals Development and Regulation (MMDR) Bill, 2016. Rahul Shah, Co-head of Research explains how the amended law will be a big positive for cement companies (subscription required). Here is some of the excerpt from the article:

• "Amended law will surely be a big positive for mining, cement, and metal companies. It will enable quicker and smoother transfer of assets among resource-based firms. It will greatly help distressed metal and cement producers sell their production units to companies with stronger balance sheets. And it will be a relief to banks with large exposure to such companies"

Moving on to the news from stocks in pharma sector. According to an article in the Livemint, Sun Pharmaceutical Industries Ltd's drug Seciera has displayed positive results in a 12-week multicentre phase-3 clinical trial conducted on 744 patients. Seciera is indicated for the treatment of dry eye disease, developed by Ocular Technologies.

One must note that, Ocular Technologies is recently acquired by Sun Pharma (Subscripton Required). Following this acquisition, Sun Pharma owns exclusive, worldwide rights to Seciera and is developing it to commercialize for global markets including the US, Europe, and Japan, as well as several emerging markets.

Moreover, Seciera would further help to strengthen the company's emerging ophthalmics pipeline, which includes the recent launch of BromSite and late stage development programmes for Xelpros and DexaSite. Going ahead, this product if approved by USFDA would give the company a share in the dry eye drug market which is expected to touch US$5 billion by 2020, the reports noted.

Sun Pharma's share price opened the day up by 1.2%

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