Sensex Trades on a Negative Note; Auto Stocks Drag

Wed, 15 Feb 01:30 pm

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After opening the day on a flat note, share markets in India witnessed selling and are currently trading below the dotted line. Sectoral indices are trading on a negative, with stocks in the realty sector and the auto sector witnessing maximum selling pressure.

The BSE Sensex is trading down by 188 points (down 0.7%) and the NSE Nifty is trading down by 66 points (down 0.8%). Meanwhile, the BSE Mid Cap index is trading down by 1.2%, while the BSE Small Cap index is trading down by 1.5%. The rupee is trading at 66.93 to the US$.

Sun Pharmaceutical Industries Ltd's shares were in focus today, as the company announced its December quarter results. Sun Pharma share price fell by as much as 3.5% in intra-day trade today as the company reported 4.7% fall in its consolidated net profit in Q3 FY 2017 on a year on year (YoY) basis owing to muted revenue growth in the US and higher tax outgo.

Sun Pharma is the country's largest drug maker and earns about 45% of its revenues from the US drug market. The company's total revenue rose 8% to Rs 76.8 billion in the quarter under review but its US business grew a modest 4% largely due to weak performance by its US subsidiary Taro.

Sales for the quarter included the benefit of authorised generic sales of blood pressure tablets Olmesartan. In the third quarter the company earned $507 million from its US business.

The India business growth at 5% YoY, too was lower than expected. While demonetization was expected to hit sales growth, its portfolio tilt towards chronic categories (ones requiring long-term medication such as cardiology or neurology) would have protected it to an extent. Normalcy has still not returned and the trade's inability to hold inventory (due to the cash shortage) appears to have affected sales growth.

Net profit for the period was Rs 14.7 billion as against Rs 15.4 billion in same quarter last year. The fall in profit was largely due to tax expense which quadrupled to Rs 3.72 billion on a YoY basis.

Sun Pharma share price seems to be hit by a multitude of factors currently plaguing the Indian pharma sector. The pharma sector has faced high amounts of 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 banking sector. With a view of financial inclusion, the government has allocated Rs 5 billion to India Post Payments Bank (IPPB) for financial year 2017-18.

The government has allocated Rs 1.25 billion as "capital infusion into corporate entity for India Post Payments Bank" and Rs 3.75 billion as "grant in aid to India Post Payments Bank (IPPB)", as per Output-Outcome Framework for Schemes 2017-18 for the Department of Posts released today.

The IPPB, which began operations on a pilot basis in late January this year is currently gearing up to set up 650 branches across country by September 2017. It had kicked off its operations by rolling out pilot services in Raipur and Ranchi.

The IPPB is the second entity to roll out payments bank - though on a pilot basis - after that has earmarked Rs 30 billion as initial investment for pan-India operations with an interest rate of 7.25% on deposits.

The IPPB will offer an interest rate of 4.5% on deposits up to Rs 25,000; 5% on deposits of Rs 25,000-50,000 and 5.5% on deposits of Rs 50,000-1,00,000. The total paid up equity of the new bank IPPB is Rs 8 billion, of which the government has already infused Rs 2.75 billion.

With the objective of deepening financial inclusion, RBI, in 2015 kicked off an era of differentiated banking by allowing SFBs (small finance banks) and PBs (payments banks) to start services. A total of 21 entities were given in-principle nod last year, including 11 for payments banks. Payments banks can accept deposits from individuals and small businesses up to a maximum of Rs 1 lakh per account.

The new model of banking allows mobile firms, super market chains and others to cater to banking requirements of individuals and small businesses.

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