Sensex Opens Lower; Automobiles and Metal Stocks Fall

Fri, 16 Aug 09:30 am

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Asian share markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.1% while the Hang Seng is up 0.6%. The Shanghai Composite is trading up by 0.6%. The S&P 500 and the Dow gained ground in a late rally on Thursday as upbeat retail sales data offset recessionary fears amid the simmering US-China trade tensions. Wall Street zig-zagged from red to black and back much of the day as investors juggled mixed messages of a strong consumer and dropping US Treasury yields.

Back home, India share markets opened on a negative note. The BSE Sensex is trading down by 260 points while the NSE Nifty is trading down by 80 points. The BSE Mid Cap index and BSE Small Cap index opened down by 0.5% and 0.4% respectively.

All sectoral indices have opened the day on a negative note with telecom stocks, automobiles stocks and metal stocks witnessing maximum selling pressure.

The rupee is currently trading at 71.40 against the US$.

In the news from the pharma sector. As per an article in a leading financial daily, Sun Pharma on August 14 entered into a global licensing pact with Hyderabad-based CSIR Indian Institute of Chemical Technology (CSIR-IICT) for ceratin patents related to the company's specialty focus areas.

The specialty focus areas include segments like dermatology, ophthalmology and oncology.

Under the terms of the licence agreement, Sun Pharma gets exclusive global licence for the said patents and any other future patents covered in the agreement.

Sun Pharma will pay CSIR-IICT upfront and potential development, regulatory and sales milestone payments totalling up to Rs 2.4 billion plus royalties on net sales from commercialisation of the products developed using these patents, the reports noted.

This agreement will facilitate addition of pre-clinical candidates to Sun Pharma's global specialty pipeline.

Note that, innovators in the pharmaceutical industry make use of patents largely. They make heavy use of patents whenever they create a new drug. In one of the articles, we have spoken everything that you need to know about patented drugs, its advantages and its implications. Here's a snippet:

• "That's how the innovators in the pharmaceutical industry work. They make heavy use of patents whenever they create a new drug. The patent allows them to recoup the high capital expenditure that goes into the research and development (R&D) of new drugs. Companies that have a patent on a particular product are immune from competition for the duration of the patent."

Notably, a number of patent infringement cases have been filed against leading Indian pharma companies and their counterparts in other countries over the last few years.

To know more about the company, you can access to Sun Pharma's Q1FY20 result analysis and Sun Pharma's 2018-19 Annual Report Analysis on our website.

Sun Pharma share price opened the day up by 0.9%.

Moving on to the news from the automobiles sector. The impact of slowdown in the auto industry on Tata Motors is visible as its Jamshedpur unit is going for third closure from today.

Reportedly, it will be two days block closure but technically it will be closed for four days.

Tata Motors went for a day closure on August 1. It went for three block closure from August 8-10 and third block will be from August 16.

As per the reports, there has been a sharp decline in purchase order of the vehicles from the Jamshedpur unit.

Note that multiple factors have affected the auto sector of late.

The liquidity crisis faced by NBFCs, regulatory changes leading to increased costs, new emission norms... they have all taken their toll.

Automobile sales have fallen every month for almost a year now, except for October when the numbers were flat. In June, nine out of India's 11 main passenger vehicle makers reported a double-digit decline in sales.

Reports state that many dealers who have recently entered the auto industry are finding it difficult to manage their repayment obligations. Banking industry experts estimate the total outstanding loans to automobile dealers to be in the range of Rs 700-800 billion.

However, it is interesting to note that despite the slowdown in the auto sector, the sales volume of electric vehicles (EVs) are growing at a robust pace.

Have a look at the chart below:

Electric Vehicle Sales on a High Growth Trajectory!

Electric-2 wheelers sales volume registered 130% YoY growth in FY19. 4-wheeler EVs grew by 200% YoY.

Similarly, electric three-wheelers reported the highest sales volume of 630,000 units. It is important to note that the electric three-wheeler industry has been growing without government support.

The base is quite low compared to the internal combustion engine (ICE) vehicle sales. However, you cannot ignore the growing momentum in EV sales.

The recently announced government incentives will give a further boost to EV sales.

The coming one year will be a real test for India's auto companies.

It will also tell us if this slowdown is temporary or if there has been a structural change in the sector.

In our view, companies in the sector adapting their business models to the rapidly changing environment will survive and thrive.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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

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