Sensex Remains in the Green; Pharma Stocks Drag

Thu, 12 Jan 01:30 pm

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After opening the day on a flat note with a positive bias, the Indian share markets have continued to trade above the dotted line. Sectoral indices are trading on a mixed note with stocks in the FMCG sector and the pharma sector witnessing selling pressure. Power stocks are trading in the green.

The BSE Sensex is trading up 101 points (up 0.4%) and the NSE Nifty is trading 28 points (up 0.3%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading flat. The rupee is trading at 68.02 to the US$.

India's largest biopharmaceuticals firm Biocon Ltd and its US partner Mylan announced that the US Food and Drug Administrator (USFDA) has accepted the biologics license application for its biosimilar drug to treat breast cancer. This would enable the company to sell the drug in the US market.

The drug, a proposed biosimilar to branded trastuzumab, will be used to treat breast cancer. The companies expect a decision from the USFDA by 3 September. This proposed biosimilar trastuzumab is also under review by the European Medicines Agency.This development positions Biocon and Mylan among the first companies to be able to address the critical need of US patents for a high quality biosimilar to treat certain HER2-positive breast cancers in the near future.

Shares of Biocon Ltd, bucked the downward trend in the pharma sector and were trading up by nearly 5% in the day's session. This uptick meant that shares of Biocon Ltd touched a record high of Rs 1049.5 in today's session.

Meanwhile, stocks in the pharma sector were taking a beating after US President Elect Donald Trump vowed to clamp down on drug pricing policies and bring back drug manufacturing to the US. Trump's comments, saying companies are "getting away with murder" in what they charge the government for medicines did not go too well with investors. Pharma stocks worldwide are seeing a downtrend; Indian pharma companies are no exception.

The Indian pharmaceutical industry has come under a lot of regulatory pressure in the past few years. The sector has faced great volatility over the years.

Volatility in the Pharma Sector

Bhavita Nagrani, our pharma sector analyst has explained the current predicament of Indian pharma companies in one of the premium editions of the 5 Minute WrapUp:

• Over the past few years, risk in the US markets has increased. The US Food and Drug Administration (FDA) has become stricter on products entering US borders. Surprise inspections have increased and companies are being issued warning letters. This has impacted the business and earnings of Indian pharma players, causing major volatility for the sector.

Give it a read to form a better understanding of the current scenario in the Indian pharma sector.

Moving on to news from the power sector. According to a leading financial daily, India's largest power generator NTPC, is set to take over Rajasthan's 1000 megawatt (MW) power plant.

The Rajasthan government on Wednesday night said that it has agreed to transfer its 1000 MW Chhabra thermal power plant to NTPC Ltd in an asset-for-equity deal.

A statement from the Rajasthan government said that eventually two more units of 660 MW each will be transferred to NTPC after their completion. The statement did not mention the valuation of the assets or the equity it would get in NTPC.

The transfer is set to improve power generation efficiency in the Chhabra plants, and eventually reduce tariff rates. The deal was given effect through a tripartite agreement among NTPC, Rajasthan Rajya Vidyut Utpadan Nigam Ltd, the state government's power generation utility, and power trading firm Rajasthan Urja Vikas Nigam Ltd.

According to the state government, the four units of the Chhabra power plant with a total capacity of 1000 MW project were commissioned between 2010 and 2014 at a cost of Rs 58 billion. The two 660 MW projects to be transferred have an estimated cost of more than Rs 79 billion.

Going forward, addition of capacity is a key to earnings for power companies. Our team has written a detailed report on how NTPC can leverage its capabilities and convert them into higher revenues and profits. Do give it a read (subscription required).

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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