BSE Realty Index Recovers after Falling Over 10% Yesterday

Thu, 10 Nov 01:30 pm

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The Indian share markets continue to trade on a strong note during the noon trading session. Sectoral indices are trading on a positive note with stock from realty sector are witnessing maximum buying interest.

The BSE Sensex is trading higher by 395 points (up 1.5%) while NSE Nifty is trading higher by 132 points (up 1.6%). BSE Mid Cap  and BSE Small Cap index are trading higher by 2% and 2.2% respectively. Gold prices, per 10 grams, are trading at Rs 30,072 levels. Silver price, per kilogram is trading at Rs 43,859 levels. Crude oil is trading at Rs 3,031 per barrel.

The rupee is trading at 66.39 to the US$.

As per an article in Livemint, Lupin Ltd declared its results for the quarter ended September 2016. The company's net profits and sales grew by 58% and 32% respectively during the quarter as compared to a year ago. However, the company's September quarter earnings cannot be compared with the year ago quarter because of the acquisition of US-bases Gavis Pharmaceutical.

Comparing sequentially, the company's net profits and sales declined by 24.9% and 3% during the quarter. The sales declined due to a drop in the revenues from the US geography. Further, the profits took a hit on the back of increasing research and development (R&D) expense.

Sequentially, the R&D expense increased by 2% and it now stands at 13.6% of net sales. Reportedly, R&D expenses are likely to be in the range of 14-15% of net sales in the current fiscal year.

Gross margins too reduced marginally when compared on a sequential basis as the company's timeline for exclusivity marketing rights for the generic version of diabetes drug Glumetza expired in July. Gross margins reduced by 0.2% and stood at 70.5% in September quarter as compared to 70.7% in the preceding quarter.

During the quarter, the company received approval for nine products from the US Food and Drug Administration. Lupin has filed abbreviated new drug applications (ANDA) for 338 products in the US and had received approval for 196 drugs as on 30 September 2016.

The company has before few days received an Establishment Inspection Report (EIR) for its Goa facility. This closes all the outstanding USFDA inspections pertaining to the company's Goa facility. This seems to be a very positive development for the company. A pick up in sales from the US geography coupled with resolving of regulatory issues will be the ekey things to watch out for going forward. The share price of Lupin Ltd is trading lower by 0.9%.

Currently the S&P BSE Realty index is trading higher by 3.5% as compared to a sharp fall of over 10% in yesterday's trade. The sharp fall in the index was triggered mainly by the recent move of the government to curb black money.

The realty sector is known to be a safe haven for using the black money. With the recent ban on 500 and 1,000 denomination notes by the Government of India (GOI), it is very likely that the circulation of black money reduces to a great extent. This in-turn will impact the realty sector which is already facing a prolonged demand slowdown.

Tanushree Banerjee too has written a mind boggling piece stating how this move will benefit stock markets and have an adverse impact on real estate. Here is some of the excerpt from the article

• "Scrapping the Rs 500 and Rs 1,000 notes is not just a war on black money. It is a war on real estate prices as well. The asset class has been due for correction for long. But black money, which has been the panacea for the sector, allowed realty companies to revel in the froth. The resulting bubble had a cascading impact on home loans as well.
  
  In fact, our colleague Vivek Kaul, explained in the latest issue of Vivek Kaul Letter how the banks are hand in glove with realty companies to keep the bubble bloating. Bank loans to commercial real estate moved up from Rs 75 billion to nearly a trillion rupees in the past six years."

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