Indian Indices Trade in Red; Energy Stocks Drag

Thu, 1 Jun 01:30 pm

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After opening the day on a flat note, share markets in India witnessed volatile trading activity and are currently trading below the dotted line. Sectoral indices are trading on a mixed note with stocks in the pharma sector and stocks in the FMCG gas sector trading in green, while stocks in the oil and gas sector are leading the losses.

The BSE Sensex is trading down by 40 points (down 0.1%), and the NSE Nifty is trading down by 20 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 0.7% The rupee is trading at 64.46 to the US$.

In news from India's manufacturing sector. The manufacturing sector stayed in expansion mode in May, charting a rebound notebandi induced downturn.

Indian manufacturing activity expanded for a fourth consecutive month in April, however at a slower pace. Manufacturing sector growth in the country moderated to a three-month low in May amid softer rise in new orders and, according to the Nikkei Purchasing Managers' Index (PMI) survey by Markit.

The PMI is the reading of the country's manufacturing sector output and is updated monthly. A reading above 50 indicates expansion, while any score below the mark denotes contraction.

Having deteriorated in December for the first time in one year, the health of India's manufacturing economy showed signs of improvement in January 2017.

The manufacturing PMI has charted its recovery from 49.6 in December 2016, to 52.5 in March, registering the fastest upward move since October 2016. At 52.5 in April, the PMI remained unchanged from the previous month. In May however, PMI growth slowed down to 51.7, still signifying expansion, albeit at a slower pace.

PMI Falls to 3 Month Low

It is evident from the above chart that the manufacturing activity is inching towards the pre-demonetisation levels noted in October 2016. However, manufacturing is seen to steadily pick up from the notebandi blues.

During May, there was "softer expansion" in both new orders and production. Incoming new work rose at the weakest pace since February, with slowdowns evident in the consumer and intermediate goods categories, while capital goods producers recorded a contraction in order books.

The survey added that below par manufacturing growth, and muted inflation could prompt the RBI to move towards an accommodative stance to support growth in the economy.

Looking ahead, production volumes are likely to rise further as businesses will seek to replenish their stocks, and look for acquisitions as remonetisation nears completion.

Moving on to news from stocks in the pharma sector. Sun Pharma share price is in focus today and surged over 2.5% in intraday trade.

The US arm of domestic drug major said that it is recalling over 13,200 bottles of antihistamine, Children's Cetirizine Hydrochloride chewable tablets, from the American market for failed specifications.

The drug was manufactured in the company's Halol plant, which is facing regulatory issues.

The US Food and Drug Administration (USFDA) said in a report that the ongoing class III recall is nationwide in the USA and Puerto Rico. As per the US health regulator, a class III recall is initiated in a situation, "in which use of or exposure to a violative product is not likely to cause adverse health consequences".

The reason for the recall as stated in USFDA's Enforcement Report is failed tablet/capsule specifications: out of specification results for increased tablet hardness.

Sun Pharma share price had plunged by over 25% in the last month over tepid results and subdued growth.

The BSE Healthcare Index too, is down by over 9% in the month gone by.

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.

We had written about 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 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.

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