Indian Indices Trade Marginally Higher

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After opening the day on a flat note, the Indian stock markets have added to their early gains. Sectoral indices are trading on a positive note with stocks from the FMCG, auto and consumer durables sectors leading the gains.

The BSE Sensex is trading up 117 points (up 0.4%) and the NSE Nifty is trading up 31 points (up 0.4%). The BSE Mid Cap index is trading up by 0.6%, while the BSE Small Cap index is trading up 0.3%. The rupee is trading at 66.77 to the US$.

Stocks in the PSU banking space are trading on a positive note with Canara Bank and Allahabad Bank leading the gains. As per an article in the Economic Times, State Bank of India (SBI) is considering a proposal to either relocate or shut down about 30% of its nearly 24,000 branches. The aim of this proposal is for the bank to remain competitive. The proposal is advised by global management consultant McKinsey, which the bank has hired for branch optimisation.

The bank, as a part of its branch optimization measures, recently shut down or relocated more than 400 branches to cut costs. Also, the bank has gone slow in adding additional branches. While it added 1,053 branches in FY14, the number fell to 464 in FY15.

The bank at present has 16,784 branches. Further, another 6,978 branches will be added to the banks network once the associated merger process is complete by the end of this fiscal year.

SBI is currently gearing for the merger of its five associate banks. Regarding this merger, the management of SBI believes it will bring three sources of benefits for the bank. First, the consolidated bank is expected to manage costs better. It is estimated that the cost-to-income ratio of the consolidated bank is said to reduce by as much as 100 basis points (bps). Secondly, the management believes that a combined treasury could perform better. And for third, the lower cost of deposit will boost margins of the consolidated bank.

There will be a flipside too. With the merger, SBI will have to bear one-time pension liability costs. This is because its employees are covered by both pension and provident fund. The management of the bank had forecast this amount to be close to Rs 30 billion. In all, the merger of SBI with its associates has its pros and cons and the actual practicalities of the merger will be visible in the time to come.

The prime question, however, is does it really make sense to merge public sector banks? Vivek Kaul, editor of Vivek Kaul's Diary, has answered this question in one of his articles.

Moving on to the news from the pharmaceutical space... Lupin has announced that its Japanese subsidiary Kyowa Pharmaceutical Industry Co has entered into a strategic asset purchase agreement with Shionogi & Co. The agreement is entered in order to acquire 21 long-listed products from the Japanese pharma major and will be effective from 1st December 2016, subject to certain closing conditions and regulatory approvals including the transfer of marketing authorization of the products to Kyowa.

The 21 products include therapy areas such as Central Nervous System (CNS), Oncology, Cardiovascular and Anti-infective. These 21 products had sales of US$ 90 million collectively on NHI (National Health Insurance) price basis.

The company stated that the above acquisition will give Lupin access to Japanese branded pharmaceutical market and strengthen its speciality business portfolio.

Lupin Pharmaceuticals is among the top five pharmaceutical companies in India. It is a leading global player in Anti-TB, anti-infectives and Cardiovascular drugs and has a notable presence in the areas of diabetes, anti-inflammatory and respiratory therapy.

Presently the stock of the company is trading down by 0.7%.

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