Sensex Stays in Red; IT Stocks Witness Buying Interest

Tue, 20 Dec 01:30 pm

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After opening the day on a flat note, the Indian share markets have continued to be in the red. Sectoral indices are trading on a mixed note with stocks in the Banking sector and Metal sector witnessing maximum selling pressure. IT stocks are trading in the green.

The BSE Sensex is trading down 88 points (down 0.3%) and the NSE Nifty is trading down 26 points (down 0.3%). Meanwhile, the BSE Mid Cap index is trading down by 1%, while the BSE Small Cap index is trading down 0.6%. The rupee is trading at 67.90 to the US$.

The Employees' Provident Fund Organisation (EPFO) has lowered the interest rates on provident fund deposits to 8.65% for 2016-17, a 15 bps cut from 8.8% it paid last year.

The Central Board of Trustees (CBT) of the EPFO, in its meeting said the decision was taken in light of low surplus and the finance ministry's aim of lowering interest rates on other saving schemes.

EPFO's financial audit and investment committee (FIAC) had recommended a similar cut in interest rate as the body's surplus was not enough to pay an interest rate of 8.8 per cent as demanded by the trade unions.

In 2015-16, EPFO's income included a surplus from the previous year of Rs 16 billion. However, according to EPFO income projections, retaining 8.8% rate of interest for the current fiscal year would have left it with a deficit of Rs 3.8 billion. However, at the rate currently announced, there would be a surplus of about Rs 693 million.

FIAC preliminary estimates show that EPFO's total income from its corpus will stand at around Rs 390 billion for 2016-17. However, trade union members argued that FIAC has not taken into consideration the interest it will earn from the investment in equities. In September, EPFO hiked its exposure to equities to 10% of total corpus from the previous 5%.

Last year the retirement fund body invested over Rs 70 billion in equities and earned a 13% return on it. However, the appreciation in equity investments is not included as income since it will only accrue once the stock is sold.

Moving on to news from the pharma sector. Pharma major Cipla said it has received final approval for its Abbreviated New Drug Application (ANDA) for Fenofibrate Tablets USP 48mg and 145mg, from the United States Food and Drug Administration (USFDA). This would enable Cipla to sell the drug in the US markets.

The Fenofibrate Tablets, USP 48mg and 145mg, are AB-rated generic equivalents of AbbVie's Tricor Tablets.

Tricor Tablets and generic equivalents had US sales of approximately US$ 307 million for the 12 month period ending October 2016. Cipla's Fenofibrate Tablets will be available for commercial shipment in the US in the coming weeks.

The approval comes as a welcome change amidst the regulatory crackdown of Indian pharma companies by the USFDA.

The US remains a major market for Indian pharma companies, and regulatory oversights can end up costing dearly. Hence, companies have to be watertight with their adherence to regulations.

Cipla has been increasing its spending in research and development, mainly to meet the stringent regulations and entry barriers to the US markets. It is evident from the chart below:

Bhavita Nagrani, our pharma sector analyst has shared detailed insights about how Cipla stands on this front in her latest research report. What's more, she has also highlighted the company's strengths, weaknesses and its future prospects.

In a related development Cipla today decided to seek shareholder's approval to raise up to Rs 40 billion via issue of securities in both domestic and global markets.

The company's board has approved raising funds up to Rs 20 billion, Cipla Ltd said in a regulatory filing.

It also said that the funds could be raised through issue of shares, private placements or American Depository Receipts or Global Depository Receipts or Foreign Currency Convertible Bonds or other securities.

The board also approved raising of funds up to Rs 20 billion by issue of non-convertible debentures (NCDs) or bonds, in rupee or foreign currency, it added.

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

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