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Published on: Sept. 26, 2020, 10:03 a.m.
Non-index shares take the lead, with pharma shares being rerated
  • Vaccine gives a shot in the arm to pharma shares

By Daksesh Parikh. Executive Editor, Business India

There are always two sides to a coin and it’s the same with market movements. One view will be that the market movement, as mirrored by the Sensex, has gone up by 317 points over the last one month having closed at 38845 on 18 September. The other would be that the market seems to be in a pause mode, having gained just 1.2 per cent during the period. After gaining nearly 13,000 points in six months from a level of a little under 26,000, some tiredness is bound to creep in.

Will it resume its onward march after a pause? There can be no clear-cut yes or no. Analysts are cautious and advise people to book profits. Prashant Joshi, co-founder, Financial Research and Advisory Services, Fintrust Advisors, says: “Even in normal times where there is a run-up in the equity market and the portfolio accumulates a minimum of 20 per cent gains, it is advisable to book profits.” Joshi rationalises that considering the uncertainty and volatility, where predicting the market even three months down the line looks like a mammoth task, it is prudent to keep cash in hand.

Of course, the market has its own mind and no amount of coaxing by FPIs or DIIs can change its course. For the record, FPIs have drastically slowed down their investments. In the month of September, they have been net buyers of only Rs1,276 crore. From January, however, they have invested around Rs86,000 crore, which is higher than the investments in the last five years. Even over a longer period, FPI investments have crossed Rs1 lakh crore on only three occasions in the last decade. Will India continue to remain the favoured market for FPIs? DIIs have been net sellers of over Rs5,000 crore. DIIs have been net sellers in July and August, so they have maintained the trend. What is surprising is that India, despite the 1.2 per cent gain, has been the best performing market in the last one month as compared to Brazil, Russia, China and South Africa. 

One important factor is, of course, the easy availability of liquidity. With the UK also looking at negative interest rates, one can expect more flows to come to the emerging markets where India is favourably placed. The other factor is that the pandemic has also been beneficial to the markets, with more funds coming in from new investors. The declining rates in the banks will also foresee more domestic money, especially from the salaried class, flowing into riskier assets, either directly or through mutual funds.

With avenues for investments drying up in real estate which is going through a real torrid time, investors are flocking to the markets. Even money which would have otherwise been invested in regular trade and business, is flowing in. While larger companies have no problems in commencing full production, trade is still in a virtual comatose position. Ahead of the festive season, there is hope of a demand revival in consumption goods, especially brown goods and white goods. Dussehra is on 25 October and Diwali is in mid-November. 

This is one reason why advisors are a little cautious. Says Tejal Gandhi, a Mumbai-based certified financial planner, (CFP): “Everyone is expecting a correction. However, I do not expect the correction to be steep or last long. Investors are required to ride the volatility rather than trying to trade on it.” 

With a higher sowing of kharif crop, albeit 5.7 per cent higher acreage, a good crop can catalyse the consumption demand. The two new bills passed in parliament lifting the restrictions on farmers to sell goods in a particular market, should probably help increase farmers’ incomes. The government, on its part, has also made it clear that the collection through MSP will continue. 

However, it is the combination of consumer demand and investment demand which can really galvanise the moribund economy. Private investment is lagging. The government, on its part, is doing its bit. The latest is the Indian Railways’ ambitious plan to set up solar panels on the idle land adjoining the railways. It plans to install 20-gigawatt capacity by 2030. Towards this end it has made a beginning to set up a 50 MW solar unit at Bhilai and one 2-MW in Haryana. It is in the process of inviting bids for 3GW on identified lands.

Meanwhile, the Corona virus has been spreading, with nearly 100,000 people being impacted daily. People are nevertheless developing a devil-may-care attitude due to fatigue having set in due to maintaining discipline for such a long period. 

This is probably the reason for the sharp rise in pharma shares. News about Pfizer making rapid advances on its vaccine to fight the pandemic saw its share prices rise sharply to Rs5,000 on 18 September. The company had said that it will be able to give a clearer picture by October. During one month, shares have risen sharply by 9 per cent.

Overall, the pharma sector is being rerated. Sun Pharma has seen a bigger rise as has Dr Reddy’s. The sharp rise in the scrip has placed it at the second rank amongst the top pharma companies. Cipla is close to its 52-week high while Sanofi is also moving ahead. Given the large population and the spread of the pandemic, overall, pharma companies are being rerated, irrespective of whether they have any specific drug for fighting the pandemic or are investing in research activity. What is endearing pharma to investors is also the generous dividend being paid. Pfizer paid a special dividend of Rs320, following it up with Rs10 as final dividend. Sanofi had paid a dividend of Rs349 inclusive of a special dividend.

Last fortnight P&G Health (formerly Merck) declared its 18-month results for the period ending 30 June. The company has recommended a total dividend of Rs230, payable in November.  The company, which is largely into vitamins, had paid a dividend of Rs440 last year on the sale of a facility to Merck. The shares had reached a 52-week high on 15 September ahead of the declaration of the dividend. 

IT in the limelight

IT shares have been steadily inching up. Infosys crossed the Rs1,000 mark ahead of its meeting on 18 October for considering its quarterly results. HCL Technologies made a 52-week high at Rs828 over reports about it expanding ties with Google and offering its cloud data warehousing facilities, Actian Avalanche. TCS and Wipro also made new 52-week highs. 

Spate of corporate actions

Corporate actions have increased in this fortnight. Deepak Fertilizers has announced a rights issue in the ratio of 3:20 to be made available to investors for Rs133. The shares are currently priced at Rs166. Elgi Equipments, which proposed a 1:1 bonus has fixed 25 September as the record date. Dhanuka Agritech has announced a buyback of shares for Rs100 crore. It will buy shares at a rate not exceeding Rs1,000 per share. EIH Hotels is also raising funds through right shares, offering eight shares for 85 shares at a price of Rs65 (including Rs63 as premium).

Meanwhile, in the second fortnight, it is advisable not to be adventurous. Many companies will be declaring their quarterly results for the period ending September. And it will be wiser to wait to take action after taking stock of the management’s statements. Parliament is also in session and any sops for industries may be declared during this session. 

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