Sensex Opens Flat; SBI Gains After Cabinet Approves Merger

Thu, 16 Feb 09:30 am

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Asian equity markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.62%, while the Hang Seng is up 0.32%. The Shanghai Composite is trading up by 0.18%. Stock markets in the US & Europe ended their previous session on a firm note.

Meanwhile, share markets in India have opened the trading day on a flat note. The BSE Sensex is trading higher by 31 points while the NSE Nifty is trading higher by 14 points. The BSE Mid Cap index and BSE Small Cap index both have opened the day up by 0.1% & 0.2% respectively.

Sectoral indices have opened the day on a mixed note with FMCG stocks and metal stocks witnessing selling pressure. While information technology stocks and consumer durable stocks are among the top gainers on the BSE. The rupee is trading at 66.92 to the US$.

Pharma stocks have opened the day on a mixed note with Elder Pharma and Sun Pharma being the most active stocks in this space. According to an article in a leading financial daily, Dr Reddy's Laboratories Limited and Aurobindo Pharma Limited have separately started recalling few quantities of two different drugs from the US market as they are found to be not up to the mark.

As per the US Food and Drug Administration (USFDA), Both the recalls are voluntarily initiated by respective companies. Dr Reddy's is recalling Olanzapine tablets USP of 2.5 mg while Aurobindo is recalling Pantoprazole Sodium for Injection, 40mg per vial from the market.

Olanzapine tablets are used for treating schizophrenia or bipolar disorder and Pantoprazole sodium for injection is indicated for short-term treatment of gastroesophageal reflux disease (GERD).

The move comes on the back of failed impurities/degradation specifications, due to out-of-specification result for the Related Substance Compound C and discoloration.

Speaking about distresses in the pharma sector, Bhavita Nagrani, our pharma sector analyst has pointed out that pricing pressures in the domestic market and the slowdown in the semi-regulated markets have led to a sharp plunge in the stock prices of many pharma companies (Subscription required).

BSE Healthcare Index 2001-16

Here's an excerpt of what she wrote:

• "Over the past few years, risk in the US markets has increased. The USFDA 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."

However, she is of the opinion that pharma companies that are upgrading and keeping facilities compliant, and have niche product pipelines in place will see sustained revenue growth.

Aurobindo Pharma share price & Dr Reddy's Lab share price both opened the day up by 0.6%.

Moving on to the news from bank stocks. As per an article in a leading financial daily, the Union Cabinet has approved the merger of five of State Bank of India's (SBI) subsidiaries, including State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP), and State Bank of Travancore (SBT) with the SBI.

Reportedly, SBI will offer 28 of its shares (face value of Rs 1 each) for every 10 shares (Rs 10 each) held of SBBJ. It will offer 22 of its shares each for every 10 shares held of SBM and SBT. The other two are wholly owned subsidiaries of SBI.

With the merger of all the five associates, SBI is expected to become a global-sized bank with an asset base of Rs 37 trillion, 22,500 branches and 58,000 ATMs. It will have over 50 crore customers, the reports noted.

According to Finance Minister Arun Jaitley, the merger would lead to a saving of more than Rs 10 billion in the first year through operational efficiency and reduced cost of funds. Further, this will minimise vulnerability to any geographic concentration risks faced by associate banks. This merger is an important step towards strengthening the banking sector through consolidation of public sector banks.

One must note that the merger proposal was announced in May 2016 and was scheduled for March 2017. The merger of SBI's subsidiaries is the first and probably the easiest phase in the government's consolidation process. Going ahead, the government will be faced with the daunting task of finding the right matches between banks to ensure a smooth merger, the reports noted.

Reacting sharply to the news, SBI share price began trading up by 1.8%, State Bank of Bikaner & Jaipur share price opened up by 4.6%, State Bank of Mysore share price and State Bank of Travancore share price rallied by 5.2% & 5.4% respectively.

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